To buy a home, most people get a conventional loan, either a conforming loan that stays under the limit set by federal guarantors Fannie Mae and Freddie Mac, or a jumbo loan that exceeds that limit and costs a bit more as a result. .
Through November 1, 2021, Mendocino County’s loan limit for conforming loans was $548,250. However, the limit just skyrocketed to $647,200 based on the sale prices of owner-occupied single-family homes in our area.
What does it mean? That means more people might be able to buy homes between $700,000 and $800,000. Prior to November 1, borrowers with a 20% down payment were capped at $685,000 (bringing the loan amount to $548,250). With the new loan limit, borrowers with a 20% down payment can now buy a home for $809,000. Be warned: Just because you can do something doesn’t mean you should.
The new loan limits are based on rising house prices, not rising incomes. So the question becomes, how much income do you need to qualify for this larger loan? If you’re an absolutely perfect borrower with no blemishes on your record, no debt of any kind, and a solid, verifiable family income, you could possibly qualify for a 49% debt-to-income ratio. If the loan amount is the new loan limit of $647,200 and the interest rate is, say, 4% (which is arbitrary, as I am not authorized to quote current rates), your monthly loan payment would be $3,089. On top of that, you would pay around $810 per month in property taxes and around $200 per month for home insurance, with a total principal, interest, tax, and insurance (PITI) payment of 4 $100 per month.
If you use these numbers and you are a perfect borrower buying a house in perfect condition, you could qualify for that house with a household income of $8,400 per month or just over $100,000 per year. Could you do that? Yes. Do I recommend it? No. Few people will be happy to spend half their income paying for a house, especially considering that home ownership entails more expenses than the monthly PITI. I generally recommend that homebuyers allow about 3% of the purchase price for annual upkeep and maintenance, because at some point roofs need to be replaced, siding needs to be repainted, water heaters need to be updated and the dishwashers need fixing, not to mention the kid next door with his trusty baseball bat and bad aim. On an $809,000 home, you should budget about $2,000 a month for repairs and maintenance.
That’s why I like to see people keep their loan repayment at no more than 35% of their income. If you were to reach the compliant loan limit with a payment of $4,100, I would say your monthly household income would need to be at least $11,500 per month or something around $140,000 per year.
If you are looking for a local loan officer, which is the way to go, may I suggest calling Ginny Richards at Kind Lending. Not only did she provide the loan limit details for this article, but she really knows her stuff and often goes the extra mile for her clients.
If you have any questions about real estate or property management, please contact me at [email protected] or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a gift card to Schat’s Bakery. If you want to read previous articles, visit my blog at www.richardselzer.com.
Dick Selzer is a real estate broker who has been in the business for over 45 years.