Unfortunately she has lots of company. Supposedly these exotic mortgages helped make homes more affordable for buyers- hogwash. Without them, builders and sellers would have been forced to set prices where people could actually afford them. If lenders were to stick to more conservative ratios, prices would drop like a rock- they would have to.

That is a bit high if you read the advise on the left you can see they recommend you don’t spend more than 21/2 times you earnings. I believe the calculator is the standard that the underwriters will allow actually they will allow anything these days however back when you had to qualify that’s what they used.

But even using those high ratios the normal wage earner in Arizona would have a hard time qualifying for a $150,000 mortgage.

That’s the reason we see so many suicide loans used today

http://money.cnn.com/popups/2006/moneymag/25_rules/3.html

For (using arbitrary ballpark #s) $100K annual income, with $60K down payment (and $0 debt, 6% int. rate) that calculator claims a buyer can afford a mortgage between $333,847 (conservative) and $403,344 (aggressive).

That’s 3.3x to 4x annual income.

That seems very high to me.

I can’t substantiate the ratio but I can add that a major problem is that so many of these buyers are leaping in with no savings at all, while living check to check.

That’s why they go no money down and with option ARMs.

They have no $ available for repairs, maintenance, next year’s property taxes or unexpected financial crises.

They’re walking a fine line between homeowners and next year’s foreclosure victims.

Statistically, many of them will stumble and miss payments. And once you fall behind while treading water living check to check, it’s almost impossible to recover.

http://money.cnn.com/popups/2006/moneymag/25_rules/3.html

When my husband and I bought our first house, I remember hearing the rule of thumb was 1/3 of your income if you had very little other debt, and 1/4 on your income if you had more in the way of ccards etc. We were already in the parent business, so we figured we had better allow for two kids- the bank wasn’t going to.

I loved the attitude shift in this article. It’s true that if you aren’t moving any time soon and your payments are well within your reach, you don’t need to obsess about how great an investment this is. People know their car isn’t that hot an investment, but they drive it to use it.

When supply is tight, you can expect to pay more for a product. Well supply isn’t tight right now. The great thing for those of us who track inventory, we know that puts downward pressure on the prices. If more people adopt the attitude of buying what they can afford, buyers aren’t going to jump in the market in any significant number, until prices make sense for them economically.

The Real Estate Center created a formula for home buyers. The math is simple. Multiply your income by 2.52.

That’s the most you should spend on a house.

It’s not often I find someone MORE conservative than me!

My personal metric is 3x income. For every primary residence I’ve owned, I’ve stepped into conforming mortgages just under 3x income and had no problems making payments.

I’m thinking that perhaps there should be one multiplier for single (me), one for married and one for married with children?

The last two groups surely face more unexpected emergencies and expenses that can impact payments. And they’re also less mobile when the job market changes.

Anyway, it’s refreshing to see someone making common sense suggestions, instead of gulling the naive with potentially dangerous “buy as much as you can afford” advice.