Good comment from Jonness on this week’s poll:
Personally, I would not feel comfortable leveraging into a $360K loan on a $100K income at a time where a significant risk of price declines exists. But, apparently many people have no problem with this. From what I’ve read, many people actually consider 28% of gross annual household income to be a conservative amount.
My question is, how do other Seattle Bubble posters feel about the 28% affordability measure? Is this realistic as an affordability measure?
I’ve always heard it as 30% of gross annual income, which is the number I used for my Simple Affordability Calculator, and the number I use when calculating the Affordability Index.
On the other hand, my personal opinion is that families that take out a mortgage whose payments eat up 30% of the gross of two incomes are putting themselves in a precarious position should either breadwinner lose their job or even take a pay cut.
My family’s threshold is quite a bit more conservative than the “traditional” measure of affordability. When we bought our house this year, we kept our total monthly payments (PITI) at around 15% of gross income—half of what is traditionally considered “affordable” by most. We also only counted one income, and have no other debt whatsoever.
So what does “affordable” mean to you? Would you take out a mortgage that required 30% of your gross income to make the payments, or is your threshold 20% or even lower?