Housing expense ratio reaches alarming levels
More than 7.5 million American people — almost 15 percent of homeowners nationwide with mortgages — spent half their incomes or more on housing costs in 2007, according an Associated Press report that examined data just released by the U.S. Census Bureau. In addition, about 19 million homeowners — nearly 40 percent of homeowners throughout the [...]
More than 7.5 million American people — almost 15 percent of homeowners nationwide with mortgages — spent half their incomes or more on housing costs in 2007, according an Associated Press report that examined data just released by the U.S. Census Bureau.
In addition, about 19 million homeowners — nearly 40 percent of homeowners throughout the nation — are now considered “financially burdened,” spending at least 30 percent of their incomes on housing.
That’s bad news for countless families located across the United States who are finding it harder and harder to make ends meet.
Of course, hindsight is 20/20. And if mortgages were issued correctly perhaps it could have helped minimize the recent affects of the housing downturn on both sides of the deals (lenders and borrowers).
To do that, lenders and buyers across the board should have followed a safer debt-to-income ratio standard that historically hovers around 28 percent.
Here’s how that looks:
- Yearly Gross Income = $45,000 / Divided by 12 = $3,750 per month income
- $3,750 Monthly Income x .28 = $1,050 allowed for housing expense
- $3,750 Monthly Income x .36 = $1,350 allowed for housing expense plus recurring debt
Clearly, this is not the only reason behind the current economic mess, but it is certainly a contributing factor. Mix in balloon mortgages, rising debt, unemployment, fuel prices and several other ingredients and we can see the reason foreclosures are occurring and the economy is struggling.
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