How much minimum carry home Salary needed to buy home 300-325K


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kalia   
Member since: Dec 03
Posts: 155
Location: Canada

Post ID: #PID Posted on: 28-01-09 12:50:43

Amit,

Questions is not what options are available, but how much minimum carry home salary one needs to have to buy $ 300-325K home.

What you are saying is that if one has gross income of $75-80K should not buy $300-325K home with 10% down even if bank is willing to lend 300K and instead go as suggested by you and take loan of 180K by your formula which is 4500*30%=180K . Isn't it ?


Another suggestion would have been to increase income or down payment.


Thanks



pratickm   
Member since: Feb 04
Posts: 2831
Location: Toronto

Post ID: #PID Posted on: 28-01-09 13:41:51

In general, we need to arrive at an equilibrium of lower home prices, shorter amortization terms and higher interest rates.
IMO, since 2004 or so, we have been living in one giant Ponzi scheme fueled by the banks, the central govt. and the media.
Of course, we as a people are equally to be blamed for falling for this, but the govt has been handing out cheap money via rock bottom interest rates, the banks with their liberal lending practices and the media with its frenzy of "buy now, buy now, buy now".
We need a significant correction in new and resale home prices.
It is very important to make housing affordable for middle classes.
And $75K - $80K annual income is far and well above the national average.
So if a person with that gross income is not able to afford housing without being saddled with a 30 year mortgage, paying over 40% of his net income in home ownership costs/expenses, then it is just a plain wrong situation.
Lower home prices and higher interest rates will strike the right balance.
It will automatically increase the down payment amount as a percentage of the home value (it will be in that safe 25% or above range).
Higher interest rates will ensure that people consciously and aggressively pay down their mortgages rather than chasing after mutual fund or senseless stock market investing.
It will also stop the HELOC madness.
In about a decade or so, we will have middle class people with lower debt and higher savings because the higher interest rates will force people to save and invest in secure, guaranteed savings accounts rather than Ponzi schemes with mutual funds and stock markets.


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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"


amit kalia   
Member since: Nov 03
Posts: 434
Location: Mississauga

Post ID: #PID Posted on: 28-01-09 16:03:03

Quote:
Originally posted by kalia

Amit,

Questions is not what options are available, but how much minimum carry home salary one needs to have to buy $ 300-325K home.

4500*12 divide by 30%=180K . Isn't it ?




I just corrected your formula above.

You can do the reverse math for $320K home.

Again, 30% of $320,000, which equals to $96,000 is the gross income qualification as per the bank's thumb rule.

However, I would feel comfortable adding the tax portion also to the above gross income amount, lets's say 30% of $96,000. Or, in other words a household that earns $124,800 gross p.a. should consider taking a $320,000 mortgage loan.

You may add any down payment amount to the above in order to arrive at your home buying price. Again, this is just my opinion, buyers do not need to agree with my personal views.




-----------------------------------------------------------------
Amit Kalia, Broker, REALTORĀ®
RE/MAX Real Estate Centre., Brokerage
independently owned & operated
100 City Centre Dr, Unit 1-702
Mississauga, ON L5B 2C9
Phone No.: 905-339-5111
Website: https://www.realestate-ontario.com/
Condo Blog: https://condopundit.com/blog/


kabutar12   
Member since: Nov 08
Posts: 130
Location: Brampton

Post ID: #PID Posted on: 28-01-09 17:07:34

I kind of agree and disagree with what Patrick has mentioned in his post.

Even if you look historically for last 30 years, prices in North America were never that cheap that one can buy a decent house with 30% of after tax income.

Also one of the main reason of buying house over renting is that your house appreciates over time and that's the reason people see it as an asset.

But at he same time i agree there need to be a balance between different factors as mentioned by Patrick but for that to happen Housing market in North America will have to crash very badly,so that a person who have 75K salary can buy a decent house.

House which is right now 320K, will have to come down to 180K for that to happen.
Even though as first time buyer i kind of like the idea of prices coming that down but when i look at the bigger picture its actually bad for us and whole economy.
(We will be in Worst depression and many more will loose jobs, busines shut down etc, very scary thought).

So i guess realistically, if the prices comes down by 10% and then stabilizes that will be great, then its correction and not depression.
So for people who are making 75K, they will have use the formula of 30% of gross salary and only then they can buy decent houses.

Just my 2 paise



kalia   
Member since: Dec 03
Posts: 155
Location: Canada

Post ID: #PID Posted on: 28-01-09 19:08:48

Quote:
Originally posted by amit kalia

Quote:
Originally posted by kalia

Amit,

Questions is not what options are available, but how much minimum carry home salary one needs to have to buy $ 300-325K home.

4500*12 divide by 30%=180K . Isn't it ?




I just corrected your formula above.

You can do the reverse math for $320K home.

Again, 30% of $320,000, which equals to $96,000 is the gross income qualification as per the bank's thumb rule.

However, I would feel comfortable adding the tax portion also to the above gross income amount, lets's say 30% of $96,000. Or, in other words a household that earns $124,800 gross p.a. should consider taking a $320,000 mortgage loan.

You may add any down payment amount to the above in order to arrive at your home buying price. Again, this is just my opinion, buyers do not need to agree with my personal views.






Amit,

When you say to do reverse engineering. Calculations will be as follows

30% of $320000 (home price) comes to $96000 p.a.

Now if this is to be considered as net of Taxes income or income after tax that means this is roughly 65 -70 percent of gross income after all deductions.

Let us gross up net income of $96000 p.a.(consider its 65 percent as it falls in tax rate of 40%, EI, CPP etc)

(96000/65)*100 equal to $ 147692 .

The above calculations as suggested by Amit Kalia means that to buy a home of $300-$325K, one should have a gross income of Approx $150000.

Atleast now one could understand how these things will give rise to subprime mess in Canada RE when buyer who do not fall in the right income range and buy homes of higher values than they could afford in addition to another point which Rahul has been saying for ages that people surviving on pay check to pay check in Canada with no saving and bought high value homes with zero down and 40 years of Mortgage. However, additionally Realtor to a great extent would also responsible for this as they are ones who only suggest buyers to go for bigger and bigger homes even though buyers do not seem to fit in that income range.

Jai ho !

Good luck and God bless everyone!





kabutar12   
Member since: Nov 08
Posts: 130
Location: Brampton

Post ID: #PID Posted on: 28-01-09 19:47:29

In USA the main reason for sub prime mess is "Variable Rates".

What happened in states in kind of sad, large number of people who got into this mess wanted to make some quick money and they took short term variable rate on mortgages which otherwise they couldn't afford. The main idea was to keep property for just 1-2 years and sell it and make quick money.
But then market fell , variable rates sky rocketed, they defaulted payment, foreclosures started happening and prices started falling.

Though there were people who thought that their variable rate will never go up (banks use to tell them by showing rate for last 10 years) and even i it goes up they will refinance their variable mortgage. But as the subprime started values of properties declined and refinancing was not an option.
Plus there were some other factors which caused subprime.

But people who took fixed rate mortgage (even if it was 30% of base) were not effected that much, coz their payment was still same.


I guess the point i am trying to make is that even if you are taking mortgage upto 35% of your gross salary but take fixed rate and has a stable job you should be fine.

Hope this helps.



amit kalia   
Member since: Nov 03
Posts: 434
Location: Mississauga

Post ID: #PID Posted on: 28-01-09 23:54:18

Quote:

However, additionally Realtor to a great extent would also responsible for this as they are ones who only suggest buyers to go for bigger and bigger homes even though buyers do not seem to fit in that income range.




I don't think so. You cannot blame Realtors. If I will tell you to jump into the well, will you?




-----------------------------------------------------------------
Amit Kalia, Broker, REALTORĀ®
RE/MAX Real Estate Centre., Brokerage
independently owned & operated
100 City Centre Dr, Unit 1-702
Mississauga, ON L5B 2C9
Phone No.: 905-339-5111
Website: https://www.realestate-ontario.com/
Condo Blog: https://condopundit.com/blog/



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