Reply #13: Playing a little with the math here [View All]

The standard rule of thumb for "how much house can you afford" is to use three times your annual income as the amount of mortgage debt you can handle. Working backwards, with a $460K loan, that means the borrower should have a yearly income of about $153,333, or $12,777 a month. The $3,747.83 payment in this example would amount to a bit less than 30% of that borrower's gross income. That's not terribly unaffordable. If one has no other debts (and if you made over $150K a year, why should you?) then this is within the guidelines for an affordable housing payment.

However, if the loan was based on 30% of one's income being $1,479.54 (the payment level at the first year, then the person is making only about $5,000 a month, and thus, $60,000 a year. A person or couple in that situation has no damned business taking out a $460,000 loan.

Who's the bigger fool here, the borrower who borrowed that kind of loot on that low an income, or the lender who lent it to them? And why should the government bail either party out of this foolishness?