You’ll often hear the common rule of thumb that the price of a home shouldn’t exceed three times your annual income. This can help homebuyers avoid becoming house rich and cash poor.
However, following this rule isn’t as easy as it seems. Despite the national recession sparked by the global COVID-19 pandemic, pent-up buyer demand and a lack of affordable homes throughout much of the country has pushed home prices higher in recent months.
Although record-low mortgage rates may offset some of the price increases, many buyers will likely need to take out larger home loans. As home prices continue to rise, buyers with stagnant incomes may need to stretch their budgets to afford a mortgage.
To see where borrowers are stretching their dollars the most to buy homes, LendingTree used information from the 2019 Home Mortgage Disclosure Act’s dataset to analyze how much leverage buyers have in the nation’s 50 largest metro areas. “Leverage” refers to the ratio of how much money is borrowed compared to a person’s income. In other words, LendingTree’s study ranks the places where people are taking out the largest home loans relative to their incomes.
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Methodology
To determine the cities with the most leveraged homebuyer budgets, LendingTree looked at 2019 Home Mortgage Disclosure Act (HMDA) data for the nation’s 50 largest Core-Based Statistical Areas (CBSAs). HMDA is a federal law that requires most lenders to report their origination activity every year. From this HMDA data, which represents more than 5.3 million mortgage purchase loans, the median amount borrowed was divided by the median income for all purchases in the HMDA database for each city looked at in LendingTree’s study.
Here are the top 25 cities where homebuyers are being squeezed the most.
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25. Tie: Tampa, Florida
Median income: $77,000
Median loan amount: $215,000
Leverage ratio: 2.792
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25. Tie: Jacksonville, Florida
Median income: $77,000
Median loan amount: $215,000
Leverage ratio: 2.792
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24. Atlanta
Median income: $79,000
Median loan amount: $225,000
Leverage ratio: 2.848
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23. Minneapolis
Median income: $85,000
Median loan amount: $245,000
Leverage ratio: 2.882
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22. Richmond, Virginia
Median income: $80,000
Median loan amount: $235,000
Leverage ratio: 2.938
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21. Orlando, Florida
Median income: $79,000
Median loan amount: $235,000
Leverage ratio: 2.975
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20. Baltimore
Median income: $92,000
Median loan amount: $275,000
Leverage ratio: 2.989
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19. Miami
Median income: $88,000
Median loan amount: $265,000
Leverage ratio: 3.011
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18. Nashville
Median income: $84,000
Median loan amount: $255,000
Leverage ratio: 3.036
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17. Phoenix
Median income: $80,000
Median loan amount: $245,000
Leverage ratio: 3.063
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16. Providence, Rhode Island
Median income: $83,000
Median loan amount: $255,000
Leverage ratio: 3.072
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15. Virginia Beach, Virginia
Median income: $76,000
Median loan amount: $235,000
Leverage ratio: 3.092
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14. Boston
Median income: $120,000
Median loan amount: $375,000
Leverage ratio: 3.125
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13. New York
Median income: $122,000
Median loan amount: $385,000
Leverage ratio: 3.156
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12. Sacramento, California
Median income: $103,000
Median loan amount: $335,000
Leverage ratio: 3.252
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11. Washington, D.C.
Median income: $114,000
Median loan amount: $375,000
Leverage ratio: 3.289
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10. Portland, Oregon
Median income: $100,000
Median loan amount: $335,000
Leverage ratio: 3.35
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9. Las Vegas
Median income: $79,000
Median loan amount: $265,000
Leverage ratio: 3.354
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8. Seattle
Median income: $119,000
Median loan amount: $405,000
Leverage ratio: 3.403
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7. San Francisco
Median income: $189,000
Median loan amount: $645,000
Leverage ratio: 3.413
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6. Riverside, California
Median income: $92,000
Median loan amount: $315,000
Leverage ratio: 3.424
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5. San Jose, California
Median income: $210,000
Median loan amount: $725,000
Leverage ratio: 3.452
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4. Denver
Median income: $101,000
Median loan amount: $355,000
Leverage ratio: 3.515
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3. Salt Lake City
Median income: $79,000
Median loan amount: $285,000
Leverage ratio: 3.608
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2. Los Angeles
Median income: $138,000
Median loan amount: $505,000
Leverage ratio: 3.659
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1. San Diego, California
Median income: $128,000
Median loan amount: $485,000
Leverage ratio: 3.789
This article originally appeared on LendingTree.com and was syndicated by MediaFeed.org.
Image Credit: DepositPhotos.com.
