It's no wonder why so many homeowners in California found themselves in trouble the past year. If what our ancestors told us is accurate, then there better be a lot of money making going on!
I have always been told to stay around the 25% - 35% range when paying for a mortgage every month.
The rule of thumb is pretty simple: Calculate your monthly gross income and multiply it by 35%. This gives you your maximum monthly mortgage payment and does not include taxes, insurance, etc.
The 2005 census tells us that the average household income in the city of Irvine is $91k. If divided by twelve, we would have a monthly income of just less than $7600. Using the suggested 28% rule in the table, our monthly payment should be about $2130 at that level of income. Now, let's just say that the average home in Irvine is $500,000. Even if we paid 10% as a downpayment, our monthly total would be $2844 at a 6.5% interest rate.
Therefore, one of two things must have happened this past real estate cycle:
1. There were many LARGE downpayments and buyers stayed within their means.
or
2. Buyers decided to buy outside of their means and may be having trouble making their payment.
I'm willing to bet the majority fall into number two. Now who's to blame for all of this? Well, possibly the lenders or real estate agents... however, at the end of the day, the consumer is the one who has to come up with that monthly payment 12 times a year.
I know what it's like being consumed by a mortgage payment... I have a vision to create satisfied clients for life that are happy with the homes I sell them. I don't wish anyone a paycheck to paycheck lifestyle. If you're curious to know more about home ownership, drop me a line!
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