Gut check-Is it affordable?

The rule of thumb is a generally 30% front-end Debt to Income ratio (DTI). This means that a homeowner’s monthly house payment or PITIA (principal, interest, taxes, insurance, and association fees) should be no more than 30% of the gross monthly household income. For every $1,000 per month in household income, the homeowner should be able to afford $300 of house payment.

Who poses the “should” for another person or family? Yes, I am skeptical about the motivations of certain lenders and some real estate professionals’ intentions. Anyone recall the genesis of our recession?

Currently, we are doing this all backwards. We tell homeowners how much house they can afford and then expect them to make the tough budget decisions to make the payment affordable. When the family still can’t afford their house payment, we assume they are overspending and send them to credit counseling to become further humiliated.  We need to carefully analyze a customers current budget, obligations and work with their comfort level and realistic forecasts.

Traditionally, real estate and mortgage professionals have encouraged homeowners to stretch – to shop for homes at the upper end of their affordability range.  Builders, architects too,  we wanted them to maximize their investment, and were seeing property values and incomes rise, especially for homeowners who were first starting out. It all made for a very sound investment in housing…sort of…

Remember after your improvement, your PITIA will increase. Does future employment look secure? Are current obligations already spreading the homeowner thin? This may not be the right time to pull the trigger on the project-one can get the plans and approvals underway, but maybe hold off on the building for a while.

My advice is take a conservative approach and not over-reach,  the days of double-digit annual appreciation in real estate are behind us. Let’s talk and see where you stand 914 674 2950-ask for Steve.