Actually yes, that’s the MAIN consideration now. In 5-7 years, the home will likely not be worth as much as it is today. The homeowner will need to have saved additional money to be able to bring extra to the closing when it is time to sell. If they can barely make the payment today, that means they are not putting aside extra savings.

The key has always been that people are able to cover the entire loan balance – either through selling the home, or through paying through the entire life of the mortgage. Given that home prices are going down, and that most people won’t stick around more than 7 years, it’s more important than ever as a responsible lender to take that into consideration. And most of them are doing just that.

I believe I was eferring to refinancing. The only conern being “Is the borrower able to make the monthly paymnet”. With most people staying in their house 5-7 years, paying off the entire loan balance is not a consideration. If someone is making a $2500/month house payment at 6.25%, don’t you think they are going to keep mkaing their payment if the rate is reduced to 5%.

Also, the primary concern of a lender is to minimize thier risk. If somoeone has the assets, the credit scores and history they should be able to buy a house if they exceed the normal 28/36 ratios, within reason. I am not talking about taking on a house payment that consumes 50% of your take home pay. The problem is that the stated income programs and the miss use that went along with it have now runined it for the people who could benefit and for who it was intended.

The rules is that most people can’t make it work unless they keep their payments to less than 30% income. The primary concern is can the the borrower PAY OFF THE ENTIRE LOAN not just make the payments right now. Studies and history have shown us that a large 20%+ downpayment, and steady income which requires less than 30% of your income to go towards housing is what works for most people.

While the 28/36 will always be the default ratio, there should be other considerations other than just current income. The primary concern is “can the borrower make the payments?” and sometimes current income just does not reflect the true financial situation of the borrower.

Let’s take South Pasadena as an example and let’s say values fall significantly and the entire city needs to refinance. Your statistics show South Pasadena’s median price above $1 million. In today’s lending standards, how many of the city’s residents would qualify? I don’t know the exact median income in South Pas (I’ve seen between $70-90K). I can’t imagine many qualifying with that kind of income unless they have significant equity.

My feeling is we need to get back to the tried and true 28/36 DTI for anything to work.