How much do you need to earn to buy a home in Chicago?

With nationwide interest rates on the rise,  inventory at historic lows and home prices rising in Chicago, housing affordability has once again become a hot-button topic.

HSH.com took the National Association of Realtor’s third quarter data for media home prices and their third-quarter average interest rate for 30-year, fixed-rate mortgages to determine how much money homebuyers in 25 cities would need to earn in order to afford the principal and interest payment on the median-priced home in their market.

There is no doubt that your income will need to be much higher to cover taxes, insurances and other expenses to live in the home, plus any other debts you might have.

CHICAGO
•    Mortgage rate: 4.68 percent (+0.74 percent from 2Q13)
•    Home price: $209,000 (+13.3 percent YOY)
•    Monthly payment: $865.15
•    Salary: $37,078.02

Though Chicago's stats are relatively affordable compared to other metro areas, they still represent a pretty big change from 2012, particularly in the salary required. In fact, if you waited from January to July to buy a median-priced home in Chicago, you would have had to make an additional $11,706.03. That's quite an increase.

As for other metro areas? You’d need to make 6 figures to afford a home in San Fransisco, the most expensive market at a salary of $125,071.78.  The most affordable? Cleveland, where you'd need to earn $22,348.03. That's quite the difference.

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    This article doesn't mention the new "qualified mortgage rules", but I'd like these rules are relative to how much money you need to PROVE that you make to qualify for a home loan. For most of the population, this won't have a very big impact, but ironically it will have a negative impact on people seeking HIGHER loan amounts.

    The counter-intuitive thing about this is that jumbo loans obviously have higher mortgage payments associated with them, yet since they are not "conforming", the maximum debt-to-income ratio is 43% if the lender wants to be in the best "safe harbor" position from a liability standpoint, should a foreclosure occur (and lenders DEFINITELY want to be in a safe harbor for bigger loan sizes). Here is the problem: Let's say that somebody borrows $750K at 5.5% on a 30 year fixed Jumbo loan. With taxes and insurance, the monthly payment could be as high as $5,000. Now, assume that between a couple car payments and credit card minimum payments, they have another $1,500 in monthly debt. So, total monthly debt = $6,500. This means that monthly gross income must be $6,500 / 0.43 = $15,116 just to qualify as a qualified mortgage! This (family) must have a gross "residual" of $15,116 - $6,500 = $8,616 (before income taxes, etc.). That is QUITE A BIT of money to "require" these people to have "left over", don't you think? Regulators need to factor in the impact of how this 43% rule mathematically works backwards to require such a high income level. Higher loan amounts should allow for lower ratio requirements. Of course, there are some lenders with the appetite for risk and will make non-qualified mortgages. I typically direct people to mortgage comparison websites such as www.RateBid.com, which allows borrowers to anonymously watch lenders compete for their loan scenario after reviewing specifics.

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