AMI or area median income is the median income for an area calculated based on a family of 4. It’s used to determine housing affordability for an area.
In some towns around me, since covid, AMI has stayed relatively consistent while housing prices have not. This means in an area where AMI is $50k and housing costs are $300k. Half of the population is now below the needed percentage front end ratio to get a conventional loan for a home.
Here’s the math: if you make $50k in a year that comes out to be $4,167 rounded up a month in gross income. Now let’s assume your monthly house payments are $1800. This is being very lenient as we have seen property taxes and interest rates increase. Your front in end ratio which is monthly housing payment divided by monthly gross income would come out to be 43%. In order to get a conventional loan your front end ratio needs to be around 28%. Which means you’d need to make $6,429 a month or $77,148 a year.
What about groceries, car payments, school loans, children, any other life expenses? Banks will check your ability to repay by also calculating your back end ratio, or monthly housing costs plus all monthly debts divided by monthly gross income. After all is calculated only the richest half in a community’s population can get a loan, let alone a house.
All we can do is save and hope for an FHA (Federal Housing Administration) loan, down payment assistance, family donation or multiple loans. This leaves generational debt, not generational wealth.
Who will fill the coffers when no-one is invested?
Housed and Fed 