Affordability Ratio
Affordability is a term used to describe the ability of a person or entity to pay in relation to the income earned by them. Affordability is the comparison of a person's income against their liabilities. The extent to which something is affordable can be described as an affordability ratio. For example, some people might be able to purchase a luxury car because it is affordable when considering their high income, while for others, owning an expensive car is not affordable because of their low income.
Affordability ratio in real estate
If we are to define affordability ratio in real estate, household expenses in relation to the income within the same household is the affordability ratio. If we deduct the household income from the housing expenditure then we obtain the net affordability ratio. This is useful in order to measure how much the expenses weigh in relation to the housing occupancy and how it affects the household budget.
The income used in order to calculate the affordability ratio includes all streams of income within the household. Retirement pensions, family benefits, financial assets, replacement income, and salaried or non-salaried professional activities contribute to the household income.
This measurement is relevant to determine the home affordability ratio, which tells homebuyers how much they can afford to spend on a house. The affordability ratio is also used by lenders to determine a borrower’s ability to follow monthly loan repayments. Different cities have a different affordability ratio, therefore, the country has cities that are most affordable and cities that are less affordable.
It all comes down to the cost of living when a comparison between two states, cities, or neighborhoods is made. The cost of living in comparison to the median household income can also be considered as an example of the affordability ratio for different cities or areas.
Popular Real Estate Terms
Process of developing an area by planning and building homes, shopping centers, schools or churches. The development process includes the construction of streets, sewers, utilities, parks, ...
Person or entity that has title or a right to something which is typically being held. Examples are real property, corporation, and personal property. Ownership of property may be held by ...
Also called settlor. A trust created by a will starting upon the donor's death. It empowers a trust administrator to implement the terms of the trust. ...
As you’d expect, the rod has various meanings in everyday discourse. However, lesser-known is that surveyors use a rod as a land survey measurement for real estate. In a nutshell, a ...
Falsify financial records and statements to misrepresent the financial position and operating results of the business. ...
Title to property being given under a court order because the original owner failed to pay the mortgage payments and/or real estate taxes. A judgment in a lawsuit may also have forced the ...
Modification made by a municipality to the zoning of a locality. A change in zoning typically has to be requested and approved by a zoning commission and then the legislative body. It can ...
(1) Rectangular area bounded on all sides by consecutive streets. It is part of a platted area. (2) Substantial amount of real estate properties to be sold together. (3) Group of houses, ...
Portion of a deed that states the act and date of the transfer of the property. ...
Have a question or comment?
We're here to help.