[...] http://www.milliondollarjourney.com/first-time-home-buyer-qualifying.htm Another rule of thumb that I like to use is that you should try to keep your mortgage under 2 x annual income. Live in an expensive city? Then consider saving for a bigger down payment. [...]

If you’re talking about the new govt tax credit for first time home buyers, you can read more about it here:
http://www.milliondollarjourney.com/federal-budget-2009-personal-opinion-and-highlights.htm

There just seems to be something that irks me with 3.5x ratio. For example, if you have an area with a high proportion of retirees, wouldn’t one expect their incomes to be quite low yet the house prices might still be high because these are bought and paid for?

I think there are too many factors to make me believe one could reasonably expect the 3.5x ratio to be usable everywhere.

To me, the simple test of how much homes are worth is based on how much they are selling for at that time.

“I’ve read articles from different sources stating a “normal” or “natural” residential house value is around 3.5 times the median income of that given area. Is this something that holds true through real estate history? Or is it just another number someone made up?

If this were the case, and the median Canadian household income (2 people, no children) is around $55-60,000, that would mean a “natural” valuation for a Canadian house is around $200,000. According to CREA, the Sept/08 national value is almost $290,000 — 45% over-priced?

Since we all know wages increase at a dead man’s pace, do we have to look forward to loosing nearly half the value of our homes, or more if we live on the West coast?!”

As far as I can tell, with the amount of posters claiming “this will get me nothing in this city”, yes, Canadian house prices are over-priced, and it seems by a lot.

I’m looking at purchasing a home between 2.5mil – 3.0mil here in California. Our joint income is about 500k/yr. We’re looking at an lease option to purchase, with 24 month terms. Our growth in our salaries is about 30% a year. So I’m hoping I can qualify for a super jumbo fixed by then, we however have never purchased a home, so I’m still not confident we’ll qualifiy.

[...] initial problem with purchasing is qualifying for the mortgage at her current salary.  Purchasing the condo would result in a month housing expenses of at least [...]

I commend you on your blog, passion, and community service.

However, I take issue with the 2x income.

What would 2x annual income equal? Let’s see:

1) 35k x 2 = 70k mortgage buys nothing in Vancouver.

2) 70k x 2 = 140k maybe a mobile home.

3) 140k x 2 = 280k maybe a studio/1br.

If the 2x rule is for a severe housing depression in prices, I agree. Otherwise, doing an MLS search would indicate on average, to buy a condo would require more akin to a 6x – 9x. Most folks needing a place in the last half decade simply could not meet this ‘rule’.

Now, for those buying a house, ’saving more’ would take another decade just to make the down payment. Looking at the Vancouver price graph over the last 30 years indicates prices over long term trends increase faster than income grows, or savings abilities for most.

Wish all the best. Hopefully relief is coming.

To learn how to pay off your house quicker check out the following link:

http://www.financiallyenhanced.com/2008/05/07/reduce-interest-rate-repayments/

[...] Maximum mortgage payments should be no more than 28% of your gross monthly salary. [I think this is what the banks use.] [...]

[...] people might have hard time managing such amount of credit available anytime. Nonetheless, if your Total Debt Servicing Ration (TDSR) is in line and you have a strong credit history, you should not have any problems getting the [...]

[...] First Time Home Buyer – Qualifying – Million Dollar Journey … an email from a young graduate the other day regarding obtaining a mortgage for the first time home buyer … If you have spotty credit, then it’s probably best to head to a mortgage broker instead. http://www.milliondollarjourney.com/first-time-home-buyer-qualifying.htm [...]

[...] April FrugalTrader05:00 am16 Comments To continue on with the First Time Home Buyer series from last week, I’d like to talk a little about the down payment required for the first time home buyer. There are many options available in Canada for down payments, but the general rule of thumb is, the higher your down payment, the less you pay in terms of fees to obtain your mortgage. [...]

[...] In terms of appeal, the most expensive option was in line with what we had in mind for ‘our house’. This would have meant picking up a fairly large mortgage, but one that would be approved without hesitation by any lender. However, I don’t believe in the 30% ‘GDS rule’ (gross debt service ratio, read Million Dollar journey for all the lingo details). Gross income is a meaningless number, unless you can pay our bills with your tax dollars somehow (please contact me if you know how, I’ll give you half of mine!). A 30% GDS rule implies that for a $100K earning family with a 35% marginal tax rate that you should be spending nearly half of your net income on your house. That doesn’t leave much for transportation, food, yet alone any quality of life things you enjoy. If you max out the GDS rule, you’re nearly working solely to pay for your house, once you factor out the other essentials. That doesn’t sound like fun to me. [...]

Those who expect to make a bundle in real estate, will have to choose their markets carefully.

Tha full story is here
http://www.cbc.ca/canada/british-columbia/story/2007/04/18/houseprices.html?ref=rss

Based on my wife’s experience (before I met her) I would greatly concur. She was turned away again and again because she was a single mother living with family saving as much as she could earn (as a temp agency employee) to accumulate a downpayment. But, through perserverance and perhaps finding a person who could empathize, she found a woman at a major bank who said ‘yes’ when others did not.

FT – perhaps someone would post information on how to obtain your credit/beacon score.