Purchasing a home is unquestionably one of the biggest expenditures most consumers will make in a lifetime. It’s exciting, it’s nerve-wracking, it’s fraught with decisions. And when you finally find the “perfect” space to call your own, it’s also nearly impossible to resist—especially these days with inventory drum-tight, interest rates still hovering near the lowest recorded numbers in the past 30 years, and intense competition for the available properties. Sadly, for some buyers, that urge to acquire an abode is putting them in a precarious financial position, according to a new WalletHub study.
The company recently set about determining which U.S. cities have the most overleveraged mortgage debtors. WalletHub compared the median mortgage balances against the median income and median home value in more than 2,500 cities.
The nation’s number-one most overleveraged city, according to WalletHub? Willis, Texas, with an overleverage score of 65.77. How do the numbers shake out? Median mortgage debt in Willis is $141,422, while the median home value sits at $74,600. Median income is $33,933, mortgage debt-to-income ratio is 417 percent, and mortgage debt-to-house value ratio is 190 percent.
Number two on the list is Ewa Beach, Hawaii, which garnered a 65.33 overleverage score. There, median mortgage debt is $357,535 and median home value is $468,200, while median income stands at $35,656. The mortgage debt-to-income ratio is 1003 percent, and the mortgage debt-to-house value ratio totals 76 percent.
Now that you have an idea of how the scoring system works, here are the overleverage scores for the remaining cities in the top 10: Dumfries, Virginia—65.29; Kahului, Hawaii—63.66; Santa Ana, California—62.3; Lahaina, Hawaii—62.2; Watsonville, California—58.35; Bell Gardens, California—56.35; Vista, California—55.72; and Richmond, Texas—55.51.
A simple tool like a mortgage calculator can be a huge aid in figuring out an affordable monthly payment and realistic payoff timeline, WalletHub says. Plus, a credit-score makeover (if necessary) is also a big help, it advises. The critical key, it notes, is knowledge.
“As with any major financial decision, it’s wise to improve one’s credit score before applying for a mortgage in order to qualify for the best possible rates,” WalletHub said. “Without a good grasp of how to pay off mortgage debt, consumers might find that debt unsustainable.”