Thursday, May 21, 2009

Risk Adverse

I was talking with our mortgage broker the last few days getting information for eventually moving and one of the things I was asking about was the risk ratios that are allowed for loans these days. The numbers I had were from early 2001 and so I assumed they had changed.

Back then, your mortgage (possibly mortgage+escrow depending on who you asked) was theoretically supposed to be <28% of your gross monthly income, and the total of all of your debts was supposed to be <36%. When we bought our first house, I scoffed at those percentages as ridiculous in terms of actually being able to sustain paying 36% of your gross income to fixed expenses each month. So irrespective of what was 'allowed' we went with something cheaper, and that was still plenty hard to afford the first year (when we bought all kinds of stuff to fill up the house).

Anyways, so I thought I would check in on how these numbers had changed with the banks supposedly spooked to loan anyone money these days. And apparently the desired top number is somewhere north of 43% for combined debts. Which boggles the mind.

If that is with stricter lending practices in place, what was it when money was 'free'?

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