Moderate Income Resident House… Really?

My dear friend D told me that his friend has purchased a house somewhere in the South Bay Area. Of course it is something to congratulate about as we all know how steep the housing prices are here. But something really confuses me…

Basically the area that is selling the newly constructed homes is only aimed and restricted to moderate income households. The restriction roughly goes something like this: 129k for 1-4 people household, 135k for 5 people household and so on… I asked D for a number of what the house costs his friend. The answer is a little over 800k.

This immediately leads to the next question… how the heck can something with moderate income afford these houses! Mind you, the 800k is the lowest priced model home. The others cost up to 1mil+.

Let us do a bit of calculation with the assumption of a 800k house, a healthy 20% down payment, and an interest rate at 6.05% for 30 years fixed mortgage. The payment comes out to $3,857.72 a month. Also assuming a household with max. income allowed of 129k, it results to around 6k after-tax per month. If we tag on utility, property tax, living/food expenses on top of the 4k~ payment, it is really walking the edge!

The fact is, I have played down the price tag, assumed a healthy 20% down payment (160k!), and also assumed a average interest rate. Let alone there are other living expenses (eg. insurance…) I did not mention.

In a nutshell, I’m just lost how they calculate the income restriction with houses priced like this… can anyone explain? I would love to hear :)

Originally posted 2007-06-04 23:39:55. Republished by Blog Post Promoter

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