# Rebuttal of Inaccurate Report - Minimum Income Needed to buy SD Home

By
Mortgage and Lending with AmeriFirst Financial Inc, San Diego, CA NMLS 259027

How much income do you need to buy a Median Priced Home in San Diego, CA? According to a report published by KUSI News on April 22, 2019, you need \$131,640.79.

What if I told you that instead of needing to make \$131,640 to buy the Median Priced Home in San Diego, you only needed to make \$83,976? (read: KUSI if off by \$47,644)

What if I told you that the \$131,640 "required income" in this bogus article would actually buy you a house for \$300,000 HIGHER than the Median Priced Home in San Diego?

FAKE NEWS ALERT! According to this bogus report from KUSI "News", San Diego Homebuyers evidently need \$131,640 in annual income to afford a "Median Priced Home" (MPH). Let's do the math, shall we?

According to Core Logic (7/2018), the MPH in SD was \$575,000 (it has since dropped to \$542,000 (SD Union Tribune, 2/2019)). Using the higher number (\$575,000) w/ 20% Down Payment (KUSI's numbers), 1.250% Tax Rate, \$150/mo in Homeowners Insurance (HOI), at 4.750% rate** (which as of today would provide closing cost CREDITS of +/- \$8,000 for a 740+ FICO score, CREDITS of +/- \$7,000 for a 720-739 FICO, and CREDITS of +/- \$4600 for 700-719 FICO scores), the total PITI payment = \$3149.

**Not a quote or offer to lend, just a mathematical example (gotta keep the compliance officers happy by saying this).

Now we can reverse engineer the total income needed assuming we cap at a 45% Debt-to-Income (DTI) Ratio (consistent with Fannie Mae & Freddie Mac underwriting guidelines). NOTE: Given the 20% Down Payment, Fannie/Freddie would likely allow a 50% DTI, but I'll keep it conservative at 45% for this rebuttal.

Remember, our total PITI payment is \$3149. In order to qualify, we would need a monthly income of at least \$6998 (which is \$83,976 annually).

REPEAT: we need \$83,976 for total income to qualify for the \$575,000 MPH. Where do we get \$131,640?

Just for giggles, let's figure out the purchase price for the \$131,640 annual income earner (using same number estimates above).

\$131,640 annual = \$10,970 monthly income. As we are now in "Jumbo Loan territory", I will reduce the DTI to 43% (as that is where most top lenders cap the DTI on Jumbo loans). At a 43% DTI, we can qualify up to a PITI payment of \$4717.

If we use a purchase price of \$875,000, our PITI = \$4713 (using 20% down, 4.75% rate, 1.25% property tax factor, \$150 in monthly HOI).

CONCLUSION: The math for the KUSI News headline suggests you need \$131,640 for a "Median Priced Home" (MPH) in San Diego. This income allows for a purchase price of \$875,000. The MPH home is only \$542,000 - \$575,000.

KUSI "News" is off by \$300,000 (using the high end of the Median House Price range in San Diego County)!!!

Dig deeper for a moment. If less Buyers emerge, Sellers need to drop their prices, which creates lower comparable property sales ("comps"), which lowers property values for all San Diego Homeowners. Careless reporting hurts us all. Get the facts from industry professionals, not news headlines!

Editors Note: I did not "run numbers" for any city other than San Diego (so I cannot speak of the accuracy for the other published numbers).

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Anonymous
Sarah

This feels borderline reckless. Could you get potentially approved for such a mortgage amount at that level of income? Sure, lenders are in it to make money.

Should you? Definitely not. Pretty widely accepted rule of thumb in the financial advice world that your P&I should be around 28% of monthly gross income, and PITI around 35%. So assuming your \$3,150 PITI, puts you closer to \$110,000 in income then \$80k.

Apr 26, 2019 10:59 AM
#1
Jason E. Gordon
AmeriFirst Financial Inc, San Diego, CA - San Diego, CA
Sr Loan Officer, CMA, CMPS, CDLP, CDRE, RCSD, CDPE

Thank you for your comment Sarah.  28% may be ideal, but not necessarily realistic in the San Diego market.  Perhaps somewhere nearer to 36% - 38% might be the sweet spot. With rising rents, some of the tolerance for higher DTI ratios still benefits the Borrower due to the benefits of property tax deductions & a "forced savings account" (by paying down principal each month). Factor in fairly constant appreciation of values and it still ends up being beneficial for the Buyers...even if they are pushing a bit higher DTI ratios.

Apr 26, 2019 05:02 PM