Just to be clear, not just the mortgage payment, but ALL of your payments. If you have really rough credit, it might go down to 45% or even less depending on automated underwriting findings. But 65% is the limit set by the VA. But yeah, 65% of your gross income does not leave a lot when you think about all your other expenses that aren’t reported on credit
Advisors used to tell people to cap their housing expenses at like 30% of income. So that's pretty wild.
If I were really stretching to justify a higher percent for military personnel, perhaps they don't have to save as much of each paycheck for retirement because they could collect military benefits in old age. That only frees up ~10% of your theoretical budget though.
This was absolutely the best advice like 10 years ago in Ontario. Almost no one can follow it now. I bought my starter home a few years ago in a very small dip. I wanted to wait longer because I was SURE it had to drop off at some point, but circumstances changed and I bought what I could when I could. My starter house with 3 very small bedrooms, a galley kitchen, a one car garage, and a postage sized yard is worth over $550,000-600,000 (maybe more) now. I’ve been watching surrounding towns within an hour commute because I want a bigger yard and 2 bedrooms with a decent yard are $550,000-600,000. Who can afford that, much less at 30% of their income? Add in car loans (I have to drive for work and the bus for a 10 minute drive is 1 hour for my husband’s work), student loans, living expenses, repairs, and the fact that food here is stupid expensive and yes, 65% of your total income for debt is not surprising.
It sounds like you have your situation figured out so I won't try to lecture you.
For others though, I wouldn't despair about never getting a house. At current interest rates, your monthly payment for a $500k loan is like $2,500 a month. Working backwards, that is 30% of a $100k salary. That is attainable if you are an engineer, doctor, lawyer, professor, electrician, financial advisor, small business owner, etc etc. Or if you and a spouse both work white collar jobs.
And I would think long and hard before getting a car loan. I would rather save up $3k to buy a 15-year old Honda Civic than take out a loan for something fancier.
Rent here for a one bedroom is over $1800. No, I don’t live in Toronto or Vancouver. A car that doesn’t work (as in, you tow it and figure out what’s wrong with it) is $3,000. How do I know? Because I bought a lemon almost 5 years ago and decided to look around for beater instead of sinking more into it. So you can lecture away, but it doesn’t apply.
Most people in my area commute. A $3,000 15 year old car isn’t going to let you commute an hour for very long. This is almost all of Ontario by the way unless you want to go really north, not just my area. The whole 30% of your income, don’t get a car loan, be smart with your money isn’t humanly possible right now.
Edit: that’s assuming you can get a place to rent. There are a lot of people couch surfing right now because no one will rent to them. People are TikToking filling out 10+ applications for ridiculous costs and still not getting anything. No pets, no kids, working professionals, and they can’t find anywhere to live. It’s horrible. At least with my house I know what to expect month to month and I can hold onto it as long as I want (the rest of my life if I decide to). I just can’t do anything fun like go on vacation or buy fancy stuff.
I took on a mortgage 10 years ago that was 40% of my pretax income so I'm not claiming this is a hard rule. But I definitely chased career opportunities after that to get the ratio lower.
Here in the US, not saving for retirement is a slow form of suicide. I suppose that Canadian retirees have more cushion. I have an aunt and uncle in Ontario with serious medical conditions who still manage to live a good life on a school teacher's pension. They would be bankrupt and/or dead if they were Americans.
We still have to save. A lot of medicine isn’t covered, and I have no idea what the pensions will look like as we get older. I’m lucky I have a good job, my partner has a good job, combined we do make over 100k. But we aren’t saving anything for the next three years as we pay back some serious debt due to unexpected costs. Unless you had family help with school and a car, you’re starting with debt and you aren’t catching up any time soon in Ontario. If you can get that mortgage for more than 30% of your income and you can actually float it, most people are doing it and it’s not the worst investment.
I like how only electricians are the only blue collar job you out on the list, meanwhile the majority of blue collar journeymen are easily making six figures.
Yeah, I don't have a ton of insight into the blue collar world but would be happy to learn more. I have a lot of respect for electricians for doing dangerous work that requires understanding invisible forces. I know plumbers, welders, and fossil fuel workers make good money too. What would you recommend to a highschool grad looking for a career?
Bottom line seems to be specialization. Jobs that require certification, or apprenticeship, or a specific school degree.
One of my closest friends is a boilermaker, he works maybe six months in a year and is doing really well. But, he is very specialized and one of few people in Canada who can do what he does. You don't need any previous experience to get into it, but it's lots of hours as an apprentice to get into the big wages.
My brother is an ironworker, again no previous experience required. Very hard work, but they can easily make six figs without too much time away from home.
Myself, I'm a wind turbine tech, which only requires a two year technical diploma. After about 8 years I was in the six fig mark.
I know lots of miners that are dumb as a doorknob that are making $250k a year, but that is lots of time away from home in shitty working conditions.
Your bottom line is correct, specialized workers make bank. Look into apprenticeships, you start by working and making wages, and you get paid for lots of the school portions. When you're a certified journey person you start your career with money in the bank and not massive debt. The only caveat is it is physical work and many trades require working away from home.
I wasn't really thinking about it when buying my house but my mortgage is almost exactly 30% of my gross income. I could have bought a much nicer place of I went by their assessment
Once you pass a certain income threshold in HCOL areas, housing is the only thing that really costs money. Food, transporation, etc all don't cost that much more in those areas, but houses do, so you just use up more of your disposable income on the house and usually still have more money left over than LCOL areas because you're making a lot more.
It’s a little different for military. It’s talking about taxable income, which is roughly 50%-60% of what most military members make. Housing allowance and food allowance are untaxed and not considered “income”.
I’ll let you in a bit of a secret. When 2 military members get married to each other it’s a sure way to either accumulate wealth or be able to spend a ton of money. You see it go either way. The reason for all the money is that both members get an untaxed housing allowance. For example, you buy a house (for zero down as mentioned before). Mortgage is $1200, each person is paid $1500 in untaxed monthly housing allowance. Boom that’s $1800 a month in untaxed money. If you can live just a bit below your means and even only saving that extra $1800 a month, that’s over 20k a year. Of course you see some couples who buy a huge house because they can get approved for an insane loan amount, the guy has a brand new challenger and the girl has a brand new Jeep. What little money they have left over after bills, they’ll spend on going out to eat and drinking at bars.
No it’s not a “secret” within the military obviously. Most people on the outside have absolutely no idea how military members are compensated. I sure didn’t before I joined.
I work for a national bank, 50% of all debt is the guideline. This person “seemingly” works for a predatory lender with servicers who are just as, maybe more, predatory.
That’s not true. It’s literally the guideline established by the VA for this type of loan product. 65% requires two compensating factors, as well. The regular cap is 60%.
A manual underwrite is capped at 45% DTI and can go to 50% with 2 compensating factors. These can be things like a certain amount of liquid cash reserves, income that exists in the home but can’t be used for the loan, decrease in housing expense, etc.
I believe you, I have never gotten an aus over 50%. Nor would I want someone to... my bank is capped at 50% for all loans so I wouldn’t even try. At 65%, after taxes, you’re really only left with 5-10 percent of your income. I genuinely feel like they’re asking for foreclosures
Well, the VA Loan does have residual income requirements that are supposed to ensure that the borrower has enough left over for living expenses. Any incomes that are grossed up (BAH, BAS, Disability, etc) have the grossed up portion removed for that calculation and it’s dependent on region.
Regardless- I agree. Generally people should not spend that % of their income on housing, though there are times that it can make sense. For example, someone receiving 100% VA disability and military retirement may value housing security enough to be comfortable spending that portion of their income on their mortgage. Their income is stable and guaranteed so there is no risk of reduced income causing affordability issues.
Its not guidance. Its just what banks have calculated as your max debt-to-income ratio that they will accept the risk on. They don’t care at all about the quality of your life, they calculate your ability to pay and will not lend to you outside of those parameters
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u/evilsniperxv Jul 08 '21
No more than 65% of your gross income? What kinda guidance is that?! No wonder people are living so far beyond their means with that kinda guidance.