# $130,000 home with $21,000 income? Can they really qualify? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [February 19, 2014, 6:42pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723 "2014-02-19T18:42:20Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Quintas](https://avatars.discourse-cdn.com/v4/letter/q/48db29/32.png) [@Quintas](https://boards.straightdope.com/u/Quintas)\ **Post date:** [February 19, 2014, 6:42pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/1 "2014-02-19T18:42:20Z")
I just read a column arguing that the middle class is alive and well. Here’s the quote that I’m questioning: > [@](#): > > I spoke with a mortgage banker who proudly described his work helping families purchase their first homes. He stressed his particular pleasure in assisting young people in the earliest stages of their careers who nevertheless managed to acquire real-estate. When I asked about the lowest-income household he could remember that had recently secured a mortgage, he proudly described a twenty-something guy and his girlfriend who earned just $21,000 a year, but nonetheless qualified for the loan they needed to buy a three bedroom, one bath home in an outer suburb of Phoenix. The purchase price of $130,000 gave them monthly payments less than $450 which they could handle even with their limited income. There has to be more to this story, right? If not, then i’m an idiot renting while being single and making double that. I put $130,000 into a mortgage calculator and the interest rate would need to be 1.5% over 30 years to get payments below 450.00 per month. Is such a low rate actually available? I’m thinking it’s more likely they had a large down payment. I’m not seeing how they could come up with a large down payment on $21,000 per year while paying rent and other expenses. Not in a reasonable amount of time. 21,000 should bring home about 1400 per month after taxes. If couple puts away 400 per month a lives on oatmeal and no unexpected expenses crop up it’s still 6 years to get 20% of 130,000. Rent? I live in the SE USA. Not terribly expensive compared to some portions of the US. But getting a non slum 1 bedroom apartment here is gonna be $500 per month minimum. I’m low balling. I’d actually be thrilled with $500. More like $600. So couple in the authors example has $4-500 left over each month to pay utilities and feed themselves. I assume they have a car. Does it ever need repairs? Anyways, is the example in this article unreasonable? Or am I stupid for not owning a house on $42000? I could actually get a decent condo here for $130,000. If I can get it for $450 per month, sign me up. ---
**Author:** ![Sal\_Ammoniac](https://avatars.discourse-cdn.com/v4/letter/s/8dc957/32.png) [@Sal\_Ammoniac](https://boards.straightdope.com/u/Sal_Ammoniac)\ **Post date:** [February 19, 2014, 6:50pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/2 "2014-02-19T18:50:15Z")
There may be more to it here. As you say, they may have had a decent down payment from some other source, such as an inheritance, or a gift from their parents. Or maybe they’re dealing with some particular housing-assistance program. There are some out there that might produce the effect described. I agree that as presented, the scenario is a bit implausible, but it doesn’t strike me as out-and-out impossible. ---
**Author:** ![Antinor01](https://avatars.discourse-cdn.com/v4/letter/a/ecae2f/32.png) [@Antinor01](https://boards.straightdope.com/u/Antinor01)\ **Post date:** [February 19, 2014, 6:53pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/3 "2014-02-19T18:53:10Z")
It could also be a 40 year mortgage, which would reduce the payment. I wonder if that’s just P&I or with escrow. ---
**Author:** ![MandaJo](https://avatars.discourse-cdn.com/v4/letter/m/ac91a4/32.png) [@MandaJo](https://boards.straightdope.com/u/MandaJo)\ **Post date:** [February 19, 2014, 6:56pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/4 "2014-02-19T18:56:10Z")
In addition to inheritance (or, more likely, life insurance payout), there is also the possibility of a legal settlement of some sort. And it’s also possible one or both of them had significant savings from high school, if they didn’t go to college. If a kid works 20 hours a week during the school year and 40 hours a week during the summer and banks 75% of that, it adds up. Add Christmas money, birthday money, etc., a saving-kind of kid can have a pretty significant nest egg by graduation. ---
**Author:** ![elbows](https://avatars.discourse-cdn.com/v4/letter/e/b3f665/32.png) [@elbows](https://boards.straightdope.com/u/elbows)\ **Post date:** [February 19, 2014, 8:09pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/5 "2014-02-19T20:09:09Z")
It’s possible they’ve both been working for several years, and living at home, with parental consent so as to raise a decent down payment, and get into the housing market early in life. Not that uncommon in a lot of ethnic communities. ---
**Author:** ![Smeghead](https://avatars.discourse-cdn.com/v4/letter/s/f1d935/32.png) [@Smeghead](https://boards.straightdope.com/u/Smeghead)\ **Post date:** [February 19, 2014, 8:25pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/6 "2014-02-19T20:25:08Z")
The house I’m in now was purchased with not dissimilar numbers. I was working a decent job, making OK money, as was my wife. Then we both quit and moved across the country so I could take the brilliant step of becoming a grad student, making around $20K per year. We got a mortgage on a house. I think the biggest thing was that the mortgage company looked at our finances when we applied - that is, before we both quit. They based their decision on my OLD situation, rather than what I was getting into. Granted, they didn’t have an option. Also, our monthly payment is WAY more than $450 a month. And finally, we had a good-sized down payment. ---
**Author:** ![DrCube](https://avatars.discourse-cdn.com/v4/letter/d/a3d4f5/32.png) [@DrCube](https://boards.straightdope.com/u/DrCube)\ **Post date:** [February 19, 2014, 9:23pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/7 "2014-02-19T21:23:22Z")
I just (like, a week ago) got a 30-year, $50k loan, and the payments are $450/month. You’re right that this story doesn’t pass the smell test. Do you have a link? ---
**Author:** ![Left\_Hand\_of\_Dorkness](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/left_hand_of_dorkness/32/7156_2.png) [@Left\_Hand\_of\_Dorkness](https://boards.straightdope.com/u/Left_Hand_of_Dorkness)\ **Post date:** [February 19, 2014, 9:29pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/8 "2014-02-19T21:29:52Z")
Would some funky ARM or a third cousin of an ARM account for the low initial payments? Maybe in five years their payment jumps to $1200 or something. ---
**Author:** ![wguy123](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wguy123/32/3161_2.png) [@wguy123](https://boards.straightdope.com/u/wguy123)\ **Post date:** [February 19, 2014, 9:32pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/9 "2014-02-19T21:32:59Z")
Yeah, there are numbers missing there. In my area, just the escrow (insurance + property tax) on something of that value run run you around $250/month. That’s before you even pay a dime on the actual mortgage. And assuming the house isn’t in a flood plain. ---
**Author:** ![Amateur\_Barbarian](https://avatars.discourse-cdn.com/v4/letter/a/59ef9b/32.png) [@Amateur\_Barbarian](https://boards.straightdope.com/u/Amateur_Barbarian)\ **Post date:** [February 19, 2014, 9:35pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/10 "2014-02-19T21:35:06Z")
> [@Left\_Hand\_of\_Dorkness](#): > > Would some funky ARM or a third cousin of an ARM account for the low initial payments? Maybe in five years their payment jumps to $1200 or something. - Ding ding ding ding ding…\* Because of COURSE both the home value and their income will go up. ---
**Author:** ![AlsoNamedBort](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alsonamedbort/32/3213_2.png) [@AlsoNamedBort](https://boards.straightdope.com/u/AlsoNamedBort)\ **Post date:** [February 19, 2014, 9:44pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/11 "2014-02-19T21:44:21Z")
I’m guessing 5/1 ARM with 20% down. Right now five year rates are around 3.25. A 30-year $104000 mortgage would have a monthly payment of $450. Of course, that excludes tax and insurance but no one ever mentions that. That leaves them about $300 left to cover that before hitting 45% DTI assuming they have no other significant debts. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [February 19, 2014, 9:48pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/12 "2014-02-19T21:48:58Z")
There once was a rule of thumb years ago that you could afford a house up to two and half times your income. I agree, this is off by more than a factor of two. Even if the mortgage/interest only was $450, they’d have a hard time maintaining it. ---
**Author:** ![Quintas](https://avatars.discourse-cdn.com/v4/letter/q/48db29/32.png) [@Quintas](https://boards.straightdope.com/u/Quintas)\ **Post date:** [February 19, 2014, 9:52pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/13 "2014-02-19T21:52:11Z")
> [@DrCube](#): > > I just (like, a week ago) got a 30-year, $50k loan, and the payments are $450/month. You’re right that this story doesn’t pass the smell test. Do you have a link? Here’s the article : [http://www.truthrevolt.org/commentary/medved-middle-class-alive-and-well](http://www.truthrevolt.org/commentary/medved-middle-class-alive-and-well) ---
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [February 20, 2014, 5:56am UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/14 "2014-02-20T05:56:17Z")
Some lenders will also fall all over themselves for some professions like starting out doctors or other professions where income takes a huge upswing once you get a little ways out of the gate. ---
**Author:** ![aruvqan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aruvqan/32/2891_2.png) [@aruvqan](https://boards.straightdope.com/u/aruvqan)\ **Post date:** [February 20, 2014, 3:26pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/15 "2014-02-20T15:26:36Z")
But then again [as to the further affordability] there are _3_ bedrooms, so the couple could potentially have 2 to 4 more room mates kicking in on the mortgage and utilities. To be honest, of the 23 years we have lived here, I think there has been perhaps 3 or 4 years total time where we have not had a roomie kicking in on the utilities, mortgage and food. I was looking at a 6 bedroom house in Fresno a few months back, 2 bedrooms and 1 full bath downstairs and 4 bedrooms and a full bath upstairs, with a sleeping/sun porch across the back of the upstairs. We could have gotten that and had 4 roomies [keeping the 2 downstairs bedrooms for ourselves so we could have a guest bedroom for visiting friends and relatives.] If you are willing to have roommates, things can suddenly be more affordable. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [February 20, 2014, 4:18pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/16 "2014-02-20T16:18:38Z")
What’s not stated, is the downpayment: $130,000 less 20% down (-$26,000) Loan amount $104,000 30 years payment: $450 per month Annual interest rate: 3.22% ---
**Author:** ![DataX](https://avatars.discourse-cdn.com/v4/letter/d/e99b99/32.png) [@DataX](https://boards.straightdope.com/u/DataX)\ **Post date:** [February 20, 2014, 4:21pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/17 "2014-02-20T16:21:57Z")
Doesn’t seem that unbelievable based on the source: > [@](#): > > When I asked about the lowest-income household he could remember that had recently secured a mortgage, he proudly described a twenty-something guy So this is the absolute BEST example he could think of - not a typical one. I just used the Wells Fargo mortgage calculator and came up with $535 (and just realized they automatically put in a 20%) down payment. Not hard to believe when rates were lower - you could have gotten near there. I’m guessing as others have said there was a down payment as a gift or whatever - remember this was his “best” example. Not all people think logically - and mortgage brokers see the same figures we do - he might remember just the monthly payment. He didn’t say there wasn’t a deposit. Logically there probably was - otherwise it wouldn’t have made for as good of a soundbite. It wasn’t like the article was hard on facts and numbers. ---
**Author:** ![Colophon](https://avatars.discourse-cdn.com/v4/letter/c/f05b48/32.png) [@Colophon](https://boards.straightdope.com/u/Colophon)\ **Post date:** [February 20, 2014, 4:49pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/18 "2014-02-20T16:49:49Z")
Does America do interest-only mortgages? They were very common in the UK until recently, so lots of people bought houses way out of their price range. The assumption, of course, was that by the time you had to pay off your mortgage, the amount of debt would have inflated away to nothing in comparison to the value of the house. People looked at the examples of their parents (who by the time their \*\*£6,000 \*\* mortgage was at the end of its term in the mid 1990s would have probably been earning three times that in a year, and the house was probably worth over £100,000), and thought the same would apply to them. But unless we go through another 1970s style period of 15%-a-year inflation, it’s not going to. By my reckoning, $450 a month interest-only would equate to a little over 4% annual interest. ---
**Author:** ![It\_s\_Not\_Rocket\_Surgery](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/it_s_not_rocket_surgery/32/312_2.png) [@It\_s\_Not\_Rocket\_Surgery](https://boards.straightdope.com/u/It_s_Not_Rocket_Surgery)\ **Post date:** [February 20, 2014, 5:43pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/19 "2014-02-20T17:43:54Z")
> [@DrCube](#): > > I just (like, a week ago) got a 30-year, $50k loan, and the payments are $450/month. You’re right that this story doesn’t pass the smell test. Do you have a link? Does that payment include insurance and taxes? If not, your rate is about 8.5% which is very different from what could make this situation plausible. ---
**Author:** ![Doctor\_Jackson](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/doctor_jackson/32/32_2.png) [@Doctor\_Jackson](https://boards.straightdope.com/u/Doctor_Jackson)\ **Post date:** [February 20, 2014, 8:42pm UTC](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723/20 "2014-02-20T20:42:58Z")
> [@ftg](#): > > There once was a rule of thumb years ago that you could afford a house up to two and half times your income. I agree, this is off by more than a factor of two. > > Even if the mortgage/interest only was $450, they’d have a hard time maintaining it. That is a very general rule of thumb. The actual ratios are that your mortgage payment should not exceed 28% of your gross monthly income or 35% of net. The gross monthly income of the couple in the example is $1750. $450 is 25.7% of that, so it is feasible. What is missing from the story is the amount financed. > [@](#): > > [Key Ratios Lenders Use](http://www.freddiemac.com/homeownership/ready_to_buy/how_much_can_you_afford.html)To determine how much you can afford, it is helpful to follow the guidance and key ratios lenders use: > > Housing Expense Ratio. Lenders recommend that your mortgage payment (principal, interest, taxes and mortgage insurance) be less than 28 percent of your monthly gross income. > > Debt-to-Income Ratio. Lenders look to see that all your other debts (credit cards, student loans, alimony, child support, car loans and housing expenses) are less than 30-40 percent of your monthly gross income. [Next page](https://boards.straightdope.com/t/130-000-home-with-21-000-income-can-they-really-qualify/681723.md?page=2)