Home Buying in Seattle>Question Details

dave, Renter in Seattle, WA

Does the 2.5 or 3 x gross salary rule even apply in a city like Seattle?

Asked by dave, Seattle, WA Fri Dec 27, 2013

I've read a lot of advice that a good rule of thumb is to spend no more than 2.5 to 3 times your gross annual income on a mortgage. How is this possible in a city like Seattle, where the median household income is around $68K, but the median home price is around $420K? Something either doesn't compute, or the market has priced over half of the population out of sensible housing, or the advice I've seen is faulty. Even if my wife and I did eventually manage to pull in a respectable $120K together (well over the median household income for Seattle) we'd still be stuck looking for a mortgage under $360K by this metric. Seattle homes don't really even start looking livable until you get north of $300K. What gives?

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Dave,
Here's the problem, a rule of thumb for the nation breaks down for individual areas. Seattle, San Francisco, NY and some other areas too will be hard to fit into the "rules".
First ask yourself how long you plan to be in your next home. If it's short term, you should buy low or consider renting. Medium to long term the benefit of our historic appreciation makes stretching the rules (within the range an underwriter will permit) make sense.
I would encourage you to sit down with a lender to get a sense of what you actually qualify for and to find out if there are any issues on your credit you can address. Even folks with good credit will benefit from getting an Lender's review and suggestions to tweak their scores and obtain a slightly better rate.
With prices and rates looking to rise this year, the sooner you start the better.
Best of luck, let us know if we can help.
0 votes Thank Flag Link Fri Dec 27, 2013
Dave,
I've said in the past, owning real estate is like an e-ticket ride at Disneyland (You might have to look that up, but older folks know what I mean). It can look scary before you get on, and there may be some up and downs, but once on the ride you enjoy it and are glad you did it.
Flag Fri Dec 27, 2013
Thanks for the reply. And definitely thanks for the thought about long term vs. short term, I hadn't really factored that in to my thinking. I think we're looking at the possibility of at least 20 years or so in a home (yeah, I know, but I tend to think rapid buying and selling of RE, while obviously a net positive for some, is terrible for anyone on the outside looking in, and also for long term prospects for affordability in general) so it would possibly make some sense to stretch the rules a bit.
Flag Fri Dec 27, 2013
3/18/2014

Dave - I am following up to see if you need any additional or updated information at this time ?
thanks !

Dave Skow - WA MLO #278613
Eagle Home Mortgage
w 206 714 9745 fax
dskow@eaglehomemortgage.com
0 votes Thank Flag Link Tue Mar 18, 2014
Actually, the multiplier is more like 4.5, at a 4.5% interest rate (coincidence) and putting 28% of your monthly gross into a mortgage payment.

Affordability is a problem that markets can't really solve, Dave. Space is tight, they're not making any more land here in town, and you have a city of affluent people who can afford to pay a lot for houses - and builders who will tear down houses to build new ones to satisfy that demand.

And, you're not the only person grumbling! I think I speak for all of us agents when I tell you that when we show somebody a $500,000 house without a view and an upstairs that is more like a finished attic than a place for a couple of bedrooms and a bathroom - buyers often take a step back and say, "I make over $100,000 and THIS is all I can afford?"

Welcome to Seattle, Dave. It's a great place, but land - and a house - is expensive here!

BTW: I just did a quick search in the NWMLS. About 200 houses "residential" at $300,000 or less, 120 listed at $1M or more. Crazy!
0 votes Thank Flag Link Sat Dec 28, 2013
Dave, I pretty much agree with what Dan & Ray have already said, so no point in repeating it again. Bottom line is that you will spend at least as much for rent, if not more, than you would on a mortgage payment. That is the reality in Seattle. If you have steady jobs & are staying as long as you indicated, than buying is probably the best option. As a loan originator, I would be happy to consult with you and let you know how much you can afford to buy. Please get a hold of me directly if you are interested.

Good luck to you in any case,
Jirius Isaac

Isaac Real Estate Team
Champions Real Estate Services
TriStar Finance #MLO-107799
Office: 425-483-6849 Cell: 206-841-9976
Winner of Seattle Magazines 5 Star
Mortgage Loan Originator Best in Client Satisfaction
Web Reference: http://TriStarFinance.com
0 votes Thank Flag Link Fri Dec 27, 2013
Well, I can't fault your logic. And, there's nothing wrong with your math skills. Housing affordability is rapidly vanishing in Seattle. Seattle appears to be on the same trajectory as San Francisco ---in other words, increasingly unaffordable to the majority of residents. My suggestion is, look into Seattle's edgier neighborhoods, such as Hillman City, White Center, or South Park. There's more affordability there, plus, there's the upside potential for appreciation as these neighborhoods improve. Perhaps the worst option for you is renting. Seattle's high rents make owning more affordable than renting, according to the 'experts'. Good luck with your quest.
0 votes Thank Flag Link Fri Dec 27, 2013
Thanks so much for the reply. I agree that it seems we're heading in the same direction as SF, unfortunately. But I tend to think that folks like me, of decent means, taking advantage of depressed values in places like Hillman City, are actually part of the problem. I'd like to put my money to good use, of course, but as we're seeing - rapid appreciation doesn't help most Seattleites.
Flag Fri Dec 27, 2013
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