What is the Affordability Index?
An affordability index is a measurement of your income/to house price ratio that determines whether you can afford a house, what type of house you can afford, and whether or not you’re in an income range that will make you attractive to lenders. These indices can be published by cities, states, growing communities, and by a variety of other sources in order to help you gauge your potential to be a homeowner. Some affordability index types also consider how living in certain locations might lower your costs or raise them for things like transportation. Many affordability indexes rate a potential homebuyer on the basis of percentage. If you are rated at 100% this means that a house in your price range should be able to be purchased by you based on the income you earn. When you have less than 100%, most lenders consider you as less than able to afford a home. Generally, your income should equal about a third of the total loan amount with ability to pay 5% down. This can go up or down with
The “Affordability Index” is the empirical number that is generated for a project sponsor using a computer model entitled “Final Report Statistical Wt. No Sales,” which is based on a combination of the most recent median household income, poverty, and unemployment census statistics for local governments. The model was developed for the program in March 2003, by the Economics Department at Florida State University, Tallahassee, Florida. It is available for your use and it is located in the Water Pollution Control Manual under publications.
