A friend of mine just had his home foreclosed on. He is financially tapped. That home, which cost about $375,000, was just too much for him to handle. Also, he kept missing mortgage payments because he was in so much debt. He and his family are now moving into a one-bedroom apartment. After the foreclosure, he significantly downsized his life and began to budget his standard of living needs more thoughtfully. Which is something he should have done before he got into all of this trouble.
But I would never say, “I told you so.” It’s a childish thing to do and adds nothing to discourse except resentment. He only did what most Americans do, which is to try to achieve the American dream. Everyone wants to own a home. Most people can’t afford to own one because they just don’t make enough money, possess too much debt, or live in a part of the country where its almost impossible. It’s true. Home ownership is financially out of the reach of Americans in over 70% of the country. Almost 8 million homes were foreclosed on between the years of 2007 to 2016.
In a nutshell, most Americans just don’t make enough money to own a home in most of the country. According to a research study conducted by ATTOM Data Solutions, the cost of a new home in 335 of 475 American counties cost significantly more than what most Americans could afford to pay for it. The dream of home ownership is just financially out of reach for many people. On the average, you should spend only a third of your annual income on a mortgage.
Depending on the city that you want to buy a home in, that figure can hit three digits. The average worker in New York City would have to spend over 115% of their salary on a house in Brooklyn or Manhattan. In San Francisco, the average worker must spend over 103% of their salary to own a home in that city. In Maui County in Hawaii, the average worker would have to spend over 101% of their income.
Wait For The Right Time to Buy a Home
No more than 30% of your monthly income should be dedicated to paying a mortgage. Also, your debt-to-income ratio should be less than 36%. This means that less than 36% of your monthly income should be dedicated to paying outstanding debts. The higher your debt-to-income ratio, then the less money you will have available to pay outstanding debts, utilities, bills, and various other standard of living payments. Keep in mind that the average price of a new home in the United States is about $380,000.
There is no shame, or financial consequences, in not trying to live above your means. It might be more financially prudent to spend more time saving money to buy a home. Or, to rehab your credit history so as to better qualify to a mortgage lender. The point is that, as difficult as it is to do, buying a home is almost always the easy part. Paying a mortgage and all the other related bills for 30+ years to keep that home is really the hard part.
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