Are the home affordability rules different for HCOL vs. LCOL?

[Love This Community]

I always felt comfortable with general rule of thumb for buying a home ( approximately 3 times the household income).

My brother lives in a a HCOL area - Bay Area to be specific. Their family has been renting for the last 6 years and saving for down payment on a single family home to accommodate growing family.

The house that they got selected for (apparently there is a lottery system for picking buyers in new communities) costs approximately 4 to 4 and 1/2 times their household income. He is the sole provider for the family and understands the risks associated. He says this is quite normal in the Bay Area.

So, are the borrowing / affordability rules of thumb different for Bay Area? He asks for my advice and I wanted to gather some inputs from this informed group.

Any insights would be helpful.

 

[pb4uski]

I think today's low interest rates might change that equation somewhat. The general rule i to spend more more than 30% of your income on housing (PITI). If their income is $150k a year and they buy a $675k house with a 3%, 30-year mortgage then their mortgage payments would be $2,846/month or $34,152/year. Add in $14k for property taxes and $2k for insurance and that totals $50k a year... 33% of income... a little high but their mortgage payment would be fixed and their income would presumably grow so the ratio would be less than 30% in a couple years.

So 4.5x income would be a stretch but not totally foolhardy IMO.

 

[Love This Community]

Thanks pb4uski! Makes sense.

 

[Love This Community]

Bumping ^ the thread to see if I can get more insights. Especially from those living in Bay Area.
Thanks again pb4uski!. Your post was very helpful.

 

[latexman]

Any insights would be helpful.

They would be "house poor" for quite a while.

 

[Love This Community]

They would be "house poor" for quite a while.

You mean house rich- cash poor?