These Cities Top The 'Mortgage Stress' List

Owning a home, for most of us, comes with certain built-in stress factors—maintenance, market value and a certain loss of housing flexibility among them. And while nearly everyone has the pressure to meet a monthly mortgage payment, people in certain cities have a higher rate of so-called “mortgage stress”—when a mortgage payment is higher than 28% of income—than others.

A personal finance website, Finder.com, did a survey to rate mortgage stress by city (the average repayment is 20.9% of the average income) and revealed:

• Half of the top 20 cities under mortgage stress are in California.
• San Francisco tops the list with average mortgage repayments taking up almost 61.47% of the median household income; its neighbor, Oakland, was third at 49.73%.
• Los Angeles has the second-highest mortgage stress level of 50.07%
• New York is fourth with 47.72%
• Detroit came in last, with repayments only making up 6.12% of the median household wage for that city.

Whitney Fite, president of Angel Oak Home Loans, says that the areas with the highest housing prices will have the highest mortgage-to-income ratio-- a comfortable mortgage payment is no more than 30% monthly income , he said. “However, what really factors in to this ratio is the debts outside of a mortgage. If someone has no other debt, a 40%  debt-to-income ratio should be very manageable. Conversely, a homebuyer with substantial credit card debt and a car loan could make a 30% debt-to-income ratio stressful.”

He said that most mortgage applications involve evaluating all debt obligations. The ratio can go up to 50% depending upon the overall characteristics of the borrower’s financial picture, including credit score and cash reserves.

“People should also take note of traffic and general lifestyle choices when considering mortgage stress. Many people are willing to pay more to live in a more convenient area with a reduced commute. In some urban areas, they are even able to walk to work, the grocery store, restaurants and the local gym, which decrease the chances of experiencing mortgage stress,” Fite said.

When homeowners find themselves feeling that their mortgage payment is over their head, there are a few things they can do:

• Create a budget and stick to it
• Figure out areas to save money
• Stop impulse spending—leave credit cards at home, hard to access, or cut them up, if necessary
• Figure out a side hustle or another way to make a little extra cash

Refinancing for a lower monthly fee when rates are low may also make sense. “ Typically, you need the new interest rate to be .75% percent less than the current loan to justify the costs ,” Fite said. “However, there are other factors – such as the length of time you plan on having the loan outstanding, and keeping in mind the possibility of shortening the term from a 30 year to a 15 year – that could affect this general rule of thumb.”

Fite's advice? Shop around for a mortgage review. “A true professional will be able to provide multiple options for you to consider in a 15-minute phone conversation. The bottom line is you should be able to recoup the costs of a refinance well before the timeframe you anticipate selling the home.”