ratios for determining how much house you can afford

Two weeks ago, I featured a home-buying inographic that presented a few ways to begin to understand how much house you can afford. There are several different ratios out there to consider when first determining what you can afford and I wanted to break them down a bit.

1. Price to Income Ratio - This ratio takes the price of the house and divides it by an individual's annual income. The national ratio (median home price/median annual income) is somewhere between 2.5 and 2.7. For example, if you make $100,000/year you can afford a home that costs between $250,000 and $270,000. Or if you live in an area where the median income is $100,000 you can expect the median home in your area to cost in that same price range. Another way of thinking about it is 3 times your gross income minus your debts.

The national ratio has remained constant for the past 30 years indicating that generally speaking housing prices have successfully fluctuated over time and with the economy. However, a recent article by Forbes in conjunction with Zillow, predicts a problematic trend. According to the article, historically low mortgage rates (which are translating into big savings for homeowners) are masking a change in the price to income ratio. Essentially, the position is that while home prices have been increasing for the past year or so median wages have not. This means that price to income ratios are on the rise. This results in potentially a large problem in that once mortgages rates rise, the market will be left with an excess of homes that are too expensive to afford for the average individual. Stan Humphries, Zillow Chief Economist, explains it by stating "Current affordability is almost entirely dependent on low interest rates, and there's no doubt that rates will begin to rise in the next few years. This will have an undeniable effect on demand for housing, as home buyers will have to spend more of their incomes to buy a home. Home values will have to either remain stagnant while incomes catch up or, quite possibly, home values will have to fall in some markets" (Forbes). Continue on to the Forbes article to learn more as well as to see a chart that compares the price to income ratios of the U.S.'s 30 largest metro areas. 

2. Affordability Index - This index sometimes called the debt or front-end income ratio is concerned with the percentage of monthly income that goes towards mortgage payments. For example, if you made roughly $8300/month or $100,000 a year and you had a mortgage payment of $1045 you would spend approximately 12.6 percent of your monthly income on your mortgage (the national average at the end of the fourth quarter in 2012). This current average of 12.6 percent is considered a historical low as from 1985 to 1999 homeowners on average spent 19.9 percent of their monthly income on their mortgage payments. In one article I read, they reported that most mortgage lenders recommend that a mortgage payment not exceed 28% of a person's gross monthly income. This can be calculated by multiplying an annual salary by 0.28 and dividing by 12 months. So if you made $100,000 and spent 28% of your income on a mortgage payment you could expect to pay $2300/month. By this calculation/percentage indicator someone can "afford" a much more expensive house or take on a shorter loan. This begins to reveal how difficult it is to really understand how much house you can afford. 

3.  Total Debt-to-Income Ratio - This ratio also know as the back-end ratio looks at what percentage of your income goes toward all debt obligation. This includes your mortgage, credit cards, student loans, car payment etc. In an article by SFGate, it is stated that this percentage should not exceed 36 percent of your gross monthly income. So using the same salary of $100,000 multiplying it by .36 and dividing it by 12 months this person's total debt payment should not exceed $3000 a month. While this ratio is not discussed as often, I think it is particularly important to current and future home-buyers as most people today are paying off some sort of student debt. 

Ultimately, it will be your lender who determines how much you can afford. However, if you leave it just up to them and don't do your research and consider all the factors you might end up spending quite a bit more than you reasonable should be. That is why it is so important to educate yourself so that you can be a responsible home-buyer!

cool season vegetable planting

 The Kale, Green by Christopher Breimhurst via Society6

Its hard to believe but the time to plant cool season vegetables is upon us here in Missouri. Cool season vegetables grow in the spring and fall as they do not do well in heat and can actually have their flavor enhanced by a light frost. Broccoli, cabbage, cauliflower, Brussels sprouts, kohlrabi, kale, and collard greens are among the most popular cool season vegetables and are all variations of the species Brassica oleraceae. Onions are another common cool season vegetable although in Missouri you are limited to only long day varieties rather than short day that are too sensitive to colder temperatures to prosper.

My tentative plan is to pull out the basil and dill which are both in their own 12" diameter pots and to plant kale. I also have another container that is roughly the same size that I would like to use for a 'Melody' variety of spinach. I am also going to transplant my strawberry plants into another container as they are annuals and I will eventually be removing the soil in the big planter to make some design improvements. I haven't totally decided if I am going to replace the strawberries with anything yet but I am thinking maybe some herbs that do well in cooler temperatures like parsley, chives and cilantro. 

According to a few articles I have read, I should be planting my transplants sometime around the middle of this month so basically two days from now. I haven't investigated my local nursery to see what they have available but I am hoping they will have organic, non-GMO plants. Going to be a busy weekend of planting...

harvesting cucumbers

Our cucumber plant has exploded in the past few weeks and has some fruit ready for picking. The first few, we are just going to be harvesting for fresh eating so we waited until they were around 6"-8" long, had a nice firm texture, and were a dark green color. I am thinking we will make a cucumber salad or just enjoy them with some salt. In the near future, we will hopefully be making some pickles which we will mean harvesting the cucumbers when they are much smaller. For sweet pickles, I read that you should pick when the cucumbers are 1" - 2.5" long. For dill pickles, the recommended size was 3" - 4". I, unfortunately, do not recall what type of cucumber plant I got (there are specific varieties for pickling vs. eating fresh) so I am just experimenting and learning as I go. Have a good Monday everyone!