Millions spend half of income on housing

[KillCapitalism]

Source: AP

Millions spend half of income on housing By ADRIAN SAINZ and ALAN ZIBEL, AP Business Writers
1 hour, 31 minutes ago

Al Ray is so strapped for cash, the only time he eats out is on Wednesday or Sunday, when the local McDonald's sells hamburgers for 49 cents.

Ray lost his engineering job last November, and has been working as high school tutor, scratching out about $1,000 a month — if he's lucky. He struggled to make his $1,400 monthly mortgage payment and $330 monthly homeowners' association fee until May, when he stopped paying.

Ray, 44, is looking for work and renting out a room in his two-bedroom condo in Davie, Fla., for $500, but his monthly income doesn't match his expenses and he's facing foreclosure.

"I barely have money to survive," he said.





Read more: http://news.yahoo.com/s/ap/20080923/ap_on_bi_ge/cash_strapped_homeowners

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This is what happens when you only have minimum wage McJobs available to a lot of people, and some are lucky to even find one of those.

[BeyondGeography]

1. One week's pay is all you should be spending

Any more, and you're in over your head.

[Xipe Totec]

2. Including real estate taxes, or not?

because I pay as much in real estate taxes as my mortgage.

[BeyondGeography]

5. Ideally, yes

But factor in the impact of your collective interest and tax deductions and things will look better.

[Gormy Cuss]

19. The "one week's pay" guideline is intended to cover PITI

The underwriting guideline is generally slightly higher than one week's pay, with a max of about 28% of monthly income as the guideline.

In addition, monthly income is slightly more than 4 weeks' pay because there are 52 paid weeks in a complete year. If you make $100/week your monthly income isn't $400, it's
about $433 (($100 x 52)/12).

So, if you make $100/week your monthly payment for mortgage,taxes, and insurance should be at or less than 28% of $433, or $121 in order to meet the ideal housing debt to income ratio (this is called the "front ratio" IIRC.)

There's also a second calculation of the overall debt to income ratio called the "back ratio." Including your PITI and your other debts from car and student loans, required payments on credit cards, etc. your overall debt to income ratio should be no more than about 36% to meet conventional loan standards.


Loans that don't require these guidelines are usually called nonconventional or nonconforming loans and I don't know what the upper limits are on the front/back ratios for those.

[AlphaCentauri]

21. How this guidelines can be apply to the economy in general? n/t

[Gormy Cuss]

22. I'm sorry, but I don't understand your question. n/t

[AlphaCentauri]

23. I should mention the despair between income and the cost of living

how can an economic balance be created to accomplish those guidelines without blaming the individual?

[Gormy Cuss]

25. Gotcha.

One of the ways to make housing more affordable is to have the government get back into the business of production of rental housing for low and moderate income people. It's a sad truth that those who live in subsidized housing are often paying a much lower percent of their income in rent than those who are trying to rent in the unsubsidized market. HUD guidelines cap the tenant payment at 30% of income in most instances, where people living in the most marginal privately owned rentals may be paying 50 or 60% of their take home pay. People are paying that much because they don't have much choice.

How to give them more choices? One way is to raise the minimum wage and increase incomes, but that doesn't create more housing units. A better plan may be to raise the minimum wage AND use government to increase the number of rental units available.

[unpossibles]

4. true, but the point of the OP is that a lot of people lost jobs and had to take lesser paying ones

but could not/did not move.

I do think, however, that a lot of people also chose to live in giant McMansions without thinking about it enough, but I don't think that describes most of the problem.

[BeyondGeography]

6. If you stick to the one week rule, more people would rent

And, as we've seen with this crisis, more people should have stuck to renting.

[krabigirl]

14. How did they know that they would lose their jobs?

[undeterred]

8. That's a good guideline

but since salaries have not been going up and everything else has, its rarely true any more.

[KillCapitalism]

12. Exactly, weak salary growth is a problem.

Wages have only risen around 1% at best for a lot of workers since 2000, but housing has increased anywhere between 35-125% depending on your market. In some markets you have to be bringing home $2K net or more per week to afford housing.

[undeterred]

16. I am in the same housing I was in 8 years ago

and then that rule was exactly true for me- but my salary has dropped by 20% and my housing has gone up by about 5%.

[krabigirl]

13. Even in better times, that was never really possible in some places, like California.

Not 50% of salary, more like 25% of gross (including taxes and HOA - not adjusted for deductions.) One week's pay is a great target, but if you live in certain areas, it never really was like that.

[Yavin4]

18. And, That's Why CA Leads The Nation In Foreclosures

Fundamentals are fundamentals.

[randr]

3. When they down sized America

they forgot to down size the debt.

[demnan]

7. This guy could be me

I'm working now, making enough to pay the mortgage with one week's pay but not the condo fees and association fees, they are extra, but still I'm doing pretty well. My problem is, I'm a temporary worker. I'm putting money aside for the inevitable. I took a job that was temp to perm but its not going perm because of the economy. I'm being realistic when I say that as things get worse I will lose my job. I also bought a new car this year. I might end up living in it.

[ElectricGrid]

9. Hard to feel sorry for folks who bought beyond their

means. I bought a fixer upper so I could afford the payments. Sure I don't feel like an A list celeb, but you can damn well be I will sleep at night even if I lose my job.

[snooper2]

11. I did the same thing...

Just put up new siding where it needed it...working on painting the whole exterior now...

When you get a little extra...buy what you need for the next project and get to it :hi:

[Tracer]

10. One person in that article dug her own hole:

"Getting a loan during the boom was easy, Hanna knows. Too easy.

"All you had to was massage the information enough to fit it into their round hole, and they gave us a mortgage," Hanna said."

[krabigirl]

15. Around here, people have always spent a lot on housing. Luckily, we don't.

Thank goodness, but we bought a modest home with the regular 20% down and 30-year fixed.

[Yavin4]

17. Maybe We Should Join Unions and Vote for Pols That Protect Labor

Maybe we should use our political power to help our economic situation.

Or maybe I'm just crazy.

[AlphaCentauri]

20. Renters must be spending 75% of their income

[Flirtus]

24. consolidation loans

pushed my "housing" payment to 60% of my income, but I have very few other debts. Am current on all now, & have no savings! The American way!