I read where a local councilwoman wanted a single mum on minimum wage to be able to afford her own home.
"So do I," I thought. So I decided to run some numbers and see just exactly what this would mean to the new homeowner.
Let's assume that the minimum wage bill trying to make its way through the Senate agrees with the number already approved by the House of Representatives, making the new minimum wage $7.25 per hour.
Let's also assume that the single mom, or an un-single mom for that matter, worked a full-time 40 hour work week. That mom makes $1,256 per month. So far, so good.
Most likely, this mom would probably go with an FHA loan with easier qualifying and let's also assume, that she also qualifies and receives down payment assistance from a local non-profit or government agency.
Using FHA guidelines, relaxed ones, we could probably see her debt ratios be somewhere around 29, meaning 29 percent of her gross income is the maximum FHA would allow her to use for house payments. That means principal, interest, taxes, insurance and a monthly MIP payment of .5 percent of the loan amount. I also upped the income with a Mortgage Credit Certificate.
Stay with me here.
Twenty-nine percent of $1,256 is $364. That means FHA will allow no more than $364 of mom's gross monthly income go towards housing. Subtract property taxes, insurance and MIP and the remaining $230 goes to a mortgage.
Using a 30 year fixed rate of 7.00 percent that works to a sales price of around $35,000. So I did a search for Austin. Roughly, there were 7,500 listings and 2 met my criteria of maximum sales price $40,000. Both were 389 square feet condos, one bed and one bath.
After the monthly house payment, mum has about $700 in the bank. We're going to assume mom has food and clothing expenses, and has a telephone and typical utility bills. Probably cable TV, too. My math is taking me towards $105 left over each month for emergencies. That's not much folks.
One busted hot water heater or car repair bill and suddenly mum can't pay the mortgage.
Does a councilwoman want this to happen? Of course not, who wants to see people get themselves in dire straits? Again, no one. But putting people in houses simply for the sake of putting people in houses does no one any good.
I've written right here in this column that I think every person who wants to own a home should have the opportunity to own one. But in mum's case, I doubt it very seriously if she wants to obligate her and her family to such an extent as a mortgage payment. No, let's just rent right now thank you and save up some money and get a raise and we'll look at it later on down the road. One water heater is one months' take home pay.
There are government programs to help people pay their mortgage payment, the Section 8 voucher being perhaps the most prevalent. Such assistance programs typically require the maximum house payment ratio to be at 30 percent. Anything above that them, mom must pay. Section 8 Rental assistance is the most common, while Section 8 mortgage assistance is less so.
So if we put mom in a house and the government invents a new program that will match mom's mortgage payment each month then we're getting a little closer. Now mom can afford to buy a home in the $70,000 range. A little more in line with median home prices, but still far short.
What do we do? Do we start such a program? Do we give those who make minimum wage a matching "grant" each month to pay their house payment? Whoops … now that we've double the house payment we've also doubled the property taxes. And insurance. And MIP.
No, I suggest that creating such a program to ensure those making minimum wage can buy their own home is nothing more than a nice, sentimental feel-good proposal with no way to fund it. That might sound mean-spirited, but I think most everyone would agree with me.
Sometimes it's just best to wait.
by David Reed
Published: August 11, 2006