Friday, June 24, 2022

5 Portland Metro Examples: Down Payment and Interest Rate Differences Have Big Impact on Home Purchase Qualifying Income Requirements.

As I previously noted the Harvard Joint Center for Housing Studies 2022 State of the Nation's Housing report has an interactive map that allows users to see estimated qualifying income for metro areas using a standard interest rate and standard loan assumptions for down payment, property taxes, and mortgage insurance. 

Their calculations also use a standard 3.5% down payment which I find more representative of the market than the 20% down payment assumption I often see in examples of income qualification requirements. 

Starting with the Harvard assumptions I created 5 scenarios to show how qualifying income varies depending on interest rates and down payments. 

The two page PDF I created HERE  and embedded below starts with a graph of the results on page 1 and then page 2 has a table with all the inputs and those results.

The results from those 5 scenarios show that qualifying income ranges from $117K to $171K. 

  • Scenario 5 has the lowest qualifying income ($117,096) because it uses a 20% down payment and a 5/1 ARM (Adjustable rate mortgage). This scenario eliminates the monthly $393 cost for mortgage insurance.  
  • Scenario 4 has the second lowest qualifying income ($150,722) because while it has a 3.5% down payment it also has the 4.81 % ARM used in Scenario 5.
  • Scenario 2 has the highest qualifying income ($171,815) because it assumes a 6% interest rate, slightly higher than the current Fannie Mae fixed rate of 5.81% found in scenario 3. 


I used the May 2022 lower RMLS Portland metro median sales price ($575,000) instead of the Zillow derived price ($592,256) used in the initial Harvard Joint Center data. 

A Consumer Handbook on ARM's from the Consumer Financial Protection Bureau is HERE

The addition of condo fees and overall debt to income ratio limits can also further limit the maximum loan amount for a given income level. 

Originally created and posted on the Oregon Housing Blog. 


No comments:

Post a Comment