New Way To Calculate Whether You Can Afford That House?

Posted on May 12 By Justin McHood

With the urban sprawl that is happening in many parts of America, many people are finding that they have an hour commute -- one way-- to work each day.

With a commute that long, it is little wonder why when gas hits $4.00 a gallon, it is all over the headlines and people start to get nervous -- we are relying on our cars more and more in today's world.

In addition to the rising cost of gas, there is also the rising cost of owning a car - insurance costs and the price of cars has steadily risen over the last few years.

Which all led to someone to ask the question: shouldn't you calculate your housing cost and your transportation costs when determining housing affordability? Is buying a house for $100,000 where you live across the street from work the same as buying a $100,000 house in an area where you have to drive an hour each way to work each day?


And at least one group is saying that the way to calculate whether or not someone can afford a house should include the cost of the home AND the transportation costs from work.

According to the Arizona Republic:

Now, an influential research center has come up with another yardstick that it says more accurately measures whether your choice of housing is beyond your means: The combined cost of housing and transportation shouldn't exceed 45 percent of your income.

The analysis reflects a growing realization that the affordability of a neighborhood varies significantly by not only housing but also average transportation costs. And when those costs are heavy, they burden not only individual households but also a whole region's economy.

The concept is helping shape new federal and state policies to encourage development of more compact communities that aren't so far-flung and promote less driving.

Although I don't really see Fannie Mae changing their debt to income ratio requirements anytime soon, I do think that they might have a point -- because more than ever before people are relying on their cars... no matter where they live.

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