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Updated almost 7 years ago, 01/26/2018
Mortgage 50% of income?
Why can a mortgage be only 50% of your income?
For many, we pay 90% or more towards rent.
Why so strict for a mortgage?
Seems like the system is designed to make you fail...
Limiting their risk as a lender. If they were to lend up to 50-90% DTI, a borrower is almost certainly going to default at some point.
@Jenna Goldstein To build on what Alex stated but go another route - its to protect you. I saw some of your questions on another thread about jobs. I will spare you the many reasons why a bank has no obligation to lend to everyone and why not everyone should own a home. But I do want to help you understand this rule is to protect you. It would be reckless and completely irresponsible for a lender, honestly, to even lend to you a loan that is 50% of your income. That is typically based on gross income, so before taxes. That doesn't leave one much money to use on other expenses or save.
I would say it is quite the exact opposite of what you stated above. Lending near 50% debt to income ratio or higher would be absolutely setting you up to fail. The bank is trying to do the opposite.
Originally posted by @Jeff Dulla:
@Jenna Goldstein To build on what Alex stated but go another route - its to protect you. I saw some of your questions on another thread about jobs. I will spare you the many reasons why a bank has no obligation to lend to everyone and why not everyone should own a home. But I do want to help you understand this rule is to protect you. It would be reckless and completely irresponsible for a lender, honestly, to even lend to you a loan that is 50% of your income. That is typically based on gross income, so before taxes. That doesn't leave one much money to use on other expenses or save.
I would say it is quite the exact opposite of what you stated above. Lending near 50% debt to income ratio or higher would be absolutely setting you up to fail. The bank is trying to do the opposite.
Renting-$1,500 a month.
Owning-$150 a month.
Unless Trulia is lying to me, seems way cheaper to own.
@Jenna Goldstein I am not trying to debate that it may be cheaper on a monthly basis. However, you are not obligated or bound for a long term. If you cannot aford it, you could end your lease or stop paying. You cannot stop paying your mortgage without serious ramifications.
Originally posted by @Jenna Goldstein:
Why can a mortgage be only 50% of your income?
For many, we pay 90% or more towards rent.
Why so strict for a mortgage?
Seems like the system is designed to make you fail...
Hi Jenna,
I'd say that you have it backwards... your landlord is setting you up to fail by allowing you to be in a situation where 90% of your gross income is needed for rent. After taxes, even a person who doesn't eat or need gas money can't make rent in this scenario.
Jenna Goldstein The financial crisis of 2008 was caused by mortgage lenders giving unqualified people a mortgage. The mortgage industry learned it’s lesson. Hopefully
Owning $150 a month? Where are you looking? Certainly not in Los Angeles where you say you’re from. This has to be a joke.
Originally posted by @Jenna Goldstein:
Originally posted by @Jeff Dulla:
@Jenna Goldstein To build on what Alex stated but go another route - its to protect you. I saw some of your questions on another thread about jobs. I will spare you the many reasons why a bank has no obligation to lend to everyone and why not everyone should own a home. But I do want to help you understand this rule is to protect you. It would be reckless and completely irresponsible for a lender, honestly, to even lend to you a loan that is 50% of your income. That is typically based on gross income, so before taxes. That doesn't leave one much money to use on other expenses or save.
I would say it is quite the exact opposite of what you stated above. Lending near 50% debt to income ratio or higher would be absolutely setting you up to fail. The bank is trying to do the opposite.
Renting-$1,500 a month.
Owning-$150 a month.
Unless Trulia is lying to me, seems way cheaper to own.
A mortgage on a $30,000 house might be $150 a month, but you won't find that in Los Angeles. And if houses are $30,000 in a certain area, rent is not going to be $1500.
#3 Creative Real Estate Financing Contributor
- Real Estate Investor
- Burlington, VT
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#3 Creative Real Estate Financing Contributor
- Real Estate Investor
- Burlington, VT
@Jenna Goldstein Agreed, there must be a typo in those numbers somewhere, regarding owning for $150 /mo. My very lowest mortgage payment is $500/ mo on a $75k mortgage (20 year). And that doesn't include the taxes or insurance.
As a landlord, I would never allow the rent to be 90% of income. Usually 30-40% at the very most.
#3 Contractors Contributor
- Contractor
- Los Angeles, CA
Jenna Goldstein Trulia IS lying to you. Enough said.
Trulia is definitely incorrect.
And @Account Closed is right- one of the reasons for the financial crisis of 2008 is because people received loans they could not afford or had a way of paying back, which resulted in many defaults and foreclosures.
Sometimes the system may seem backwards, and often times it is, but if you are spending 50% on your rent/mortgage without accounting for the cost of living, then that sounds like a pretty stressful life where you'll never be able to get ahead.
