Terrible advice from Consumerist
Basic Advice: Mortgage Payments Shouldn’t Exceed 28% Of Your Income – Consumerist
Those with option-ARM mortgages ratcheting up to a higher APR in October, take note: A well-polished piece of advice for home owners is that mortgage payments, including principal, interest, insurance, and taxes, should not be more than 28 percent of your gross monthly income, according to the August issue of the USAA member magazine. Individual situations may vary, but the basic idea is not get more house than you can afford. Around 28% gives you enough to take care of day-to-day living expenses and food and gas and going to see Transformers and whatnot.
I guess it’s not terrible advice, if you live somewhere cheap and bad. But if you want to be a player and live in the Bay Area, better add another 20 to that and bring it up to 48%.
Fortunately, as we all know, once you spend 48% of your income on your mortgage (PI not TI), it’s really cheap to live here. Food is cheap. Gas is cheap. You won’t need to spend money on tanning salons. And it’s so diverse here you will never need to go on vacation again.
So, Consumerist – please. Help your readers by explaining to them why spending 48% of your income on mortgage is imperative if you want to have a good life in the world’s most special place: the Bay Area.
August 14th, 2007 at 3:30 pm
Ah, those pesky “financial basics”. I was once told that a mortgage should be around 3x your salary, and 4x if you’re willing to push it. That was 20 years ago, by a bank in South Africa, but it’s so basic that it still works: my quick calculation tells me that the 28% figure they give translates to about 3x salary, where the interest rate is just over 7%.
August 14th, 2007 at 3:31 pm
Is that before or after tax deduction?
August 14th, 2007 at 4:43 pm
But don’t forget to take out a HELOC, so you can dedicate your remaining income to the latest BM, Merc, or Lexus, a plasma in each room, and vacation. Keeping up with the Jones’s (or is it the Changs) is a b#%$@# in the bay area.
August 14th, 2007 at 5:13 pm
The Consumerist isn’t really known for being a mortgage blog, and should keep their nose out of it and focus on busting up illegal t-shirt shipments to J Crew and bad Transformer jokes.
A 28% max DTI ratio would leave about 2-3% of the population in homes in popular housing markets nationwide.
It’s an ideal number, but not a realistic one. Basing an article on a statistic and throwing in the option-arm to sound like you get it is laughable. Way to call them out!
August 16th, 2007 at 8:21 am
I dunno. I’ve bought two houses so far, and both times my mom was following me around chanting “twenty-eight percent” like some kind of magic formula. I’m all, “Mom, look, I’m capable of doing my own math, and I’m also not going to beggar myself just for the privelege of owning property.”
August 17th, 2007 at 7:25 am
There are NO homes here in Suffolk County new york that i COULD buy at 28% of my income…. AND i make nearly twice the average salary for this area!
liz
August 21st, 2007 at 5:15 am
Heh. I make $100k in DC. At 28%, I can afford a one-bedroom condo. Or I can keep renting a 3BR/2BA, 1500 sq ft. apartment for 12% of my income, and save the rest.
Hmmmm, let me think…
August 21st, 2007 at 7:51 am
Why do you hate the American Dream?