> Meanwhile, renters are desperate. They’re begging for housing prices not just to slow, but to fall. I have a friend who is a head chef at a decently popular bar and restaurant on Broadway in Capitol Hill, Seattle (very trendy part of town if you aren't familiar, steep commercial rent). He lives in a 400 sq ft studio and is barely, barely making it from one paycheck to the next. I am sitting on a 2.6% interest rate…
What sucks is a lot of young renters with steady jobs can afford to pay off a mortgage month to month, but they just can't afford that down payment (especially the 20% needed so as to not need to get mortgage insurance)! I was in that position for a while. Every time it seemed like I could afford to put that money down, the housing prices went up! It took a handful of years of renting cheap places (with roommates), l…
PMI affects the affordability but not by much - maybe $300-400/mo or so, and if you can get a conventional loan with a 3-4% down payment (which do exist) then it'll drop off once you've paid off 20% of the principal.
For conventional mortgages, the max DTI most lenders will be fine with is 45%, but let's be safe and go 40%. Let's take a household income of 150k, that's $12,500 a month, so you can have up to $5000 in monthly debts (DTI is based on GROSS income). If you have, say $1000 in monthly debts (eg. minimum student loan payments, minimum CC payments, and cars), you'd likely be approved for up to $4000 in housing expenses, which with 3.5% down and a worst case scenario interest rate of 7.3%, means a maximum home price of about $500,000. But when you factor in PMI, you'd only qualify for $450,000 since PMI is about $358 a month.
That's not all that much of an affordability drop - the difference is that you're basically forced to fall in line with urban sprawl by buying a smaller house further out, maybe even to the point where you're driving 40+ miles to work.