Thursday, January 5, 2017

Rising Rates and Buyers' Purchasing Power

Over the Holiday I was enthralled by a classic work of cinematic art- It’s a Wonderful Life by Frank Capra The protagonist George Bailey, played by James Steward, sacrifices his plans of exploring the world to take over the family business.  George takes his late father’s position at the Bailey Brothers' Building and Loan, a longtime competitor to a ruthlessly financial shark Mr. Henry F. Potter, the local banker and the richest man in Bedford Falls. In the spirit of free market capitalism George is determined to keep the Bailey Brother’ Building and Loan business alive.


A shocking comparison to today’s banking system, George Bailey often personally knew the loan recipients, offers the working middle class a fair interest rate, and rarely sought out to profit in excess of a high yielding return. Not much of a business man in today’s world-George Bailey would never make it on Wall Street. A long gone era in American both in social customs, and home loan rates. According to It’s a Wonderful Life, George Bailey was giving out loans to build a brand new house was and the amount? - $5,000!

FUN FACT:  Did you know, for every 1% the interest rates increase, a buyer pays an additional $58 per month on every $100,000 they borrow (3.5% – 4.5%)

Rates have risen, Banks may not give us $1M+ loans solely on a handshake but none the less this month, I decided to outline what today’s market means for investors, buyers, and homeowners in New York.

In applying for a loan, lenders/banks often qualify buyers using an Debt to Income (DTI) ratio. You’re debt including your new mortgage, common charges and taxes plus such liabilities as credit cards, student loans and revolving credit, collectively cannot exceed 45% of your income. The bank needs to insure your income can offset your debt obligation.

To determine your DTI, add your total monthly debt obligations including the following items:
  • Car loans and leases 
  • Student loans
  • Installment loans
  • Alimony or child support
  • Credit card minimum payments
  • Projected mortgage payment
  • Common charges, taxes and insurance
In order to determine DTI, divide your total future debt obligation by your monthly gross income[1]. As an agent, we assist in evaluating your DTI to qualify you for a co-op or condo. 

FUN FACT:  Did you know Co-Op Buildings look for typically 28% DTI or less, whereas Condo Buildings follow lending guidelines of 40%-45%.


1 comment:

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