When you buy a home, you buy neighbors, amenities, a
lifestyle…and a commute. If you're about to commit to a home
purchase, apply the brakes until you understand the implications of
the home's location, location, location.
A commute can drive you crazy
In the movie "Falling Down," Michael Douglas is stuck in his
usual C02-ridden, crawling, hand-gesturing, honking commute when he
snaps--beginning a downward spiral of threatening fast food
workers, firing a rocket launcher and taking out a gang.
Yes, that's just a movie, but real-life road rage is no laughing
matter. If jacking up your blood pressure twice a day doesn't
appeal to you, it's time to think again about living too far from
Commuting as an extreme sport?
According to the U.S. Census Bureau, 3.2 million Americans have
commutes classified as "extreme," that is, more than 90 minutes
each way, and 10.4 million spend at least an hour getting to work
and another getting home.
Alan Pisarski, a transportation expert from Falls Church, Va.,
The Wall Street Journal
that it's only going to get worse. High unemployment has forced
many job seekers to look ever farther from home, and the high cost
of housing in many metropolitan areas pushes families well beyond
the city limits.
Housing prices versus commuting time: the
today's mortgage rates
are still very low, today's gas prices are not.
National Association of Realtors
(NAR) urges its members to understand the commuting conditions in
their areas and to make sure that buyers are cognizant of them
before committing to a home
Often, the savings realized by living on the outskirts is eaten up
by higher commuting costs.
study by the Urban Land Institute
found that when transportation costs were added on top of housing,
those in the suburbs paid more than those living closer in, even
though their housing costs were lower.
"What we have too frequently thought is that you can get an
affordable house if you drive until you qualify, but if you then
overlay the costs of transportation, they get very high," said
Henry Cisneros, an Urban Land Institute board member and former
Secretary of Housing and Urban Development.
Commuting costs and your mortgage
If the reason you want to move an hour from your workplace is to
qualify for a bigger home, keep in mind that you'll need to factor
in the added commuting costs--extra gas, vehicle maintenance, even
insurance--and that mortgage lenders don't generally include these
when making their underwriting decisions.
"Your annual mileage is one factor in what you pay for auto
insurance," said Amy Danise, Editorial Director of Insure.com.
"That's because the more you drive, the greater your chance for an
accident and an insurance claim. Therefore, insurance companies
charge more to drivers who commute long distances."
Most home loan approvals are loosely based on maximum housing
expenses of about one-third of your income (this can be higher or
lower depending on your other expenses, your credit score and your
assets). However, lenders do not include your commuting costs when
calculating your total debt-to-income ratios and approving your
mortgage. You could find yourself in a home with a very expensive
commute that you can't realistically afford.
Consider that the above-mentioned study also found that, while
30 percent is a reasonable housing-expense-to-income ratio, a
distant commute plus housing can double the size of the bite out of
your income. In fact, a quarter of the communities in the study
area had a combined housing and transportation cost exceeding 58
percent of their median household income, which the Institute
considered "extremely burdensome."
Tweak your mortgage
One way of affording the home that's closer to the office is to
choose a hybrid adjustable rate mortgage. Rates on these loans run
about 1 percent lower than rates on a 30-year fixed rate mortgage,
and your rate is fixed for 3, 5 or 7 years (choose according to how
long you expect to keep your home). That 1 percent difference means
you'd pay about the same financing a $300,000 loan with a hybrid
ARM at 3.25 percent as you would a $275,000 fixed rate mortgage at
How many gallons of gas can this ARM buy you?
A $300,000 loan at 4.25 percent gives you a monthly payment of
$1,475.82. At 3.25 percent, the monthly payment equals $1305.62. If
divide the difference ($170.20/mo) by the price of gas (say,
$3.65/gal), that's 46.63 gallons of gas. Let's say your vehicle
gets 22 mpg, that's 1,026 miles each month you could pay for by
choosing an ARM at 3.25 percent--about 12,312 miles per year.
Quantifying the cost of a commute
Sometime between shopping for the lowest mortgage rates and
making an offer on a home, give your prospective commute a dry run
during normal commute times. If you're trying to choose between two
locations, you'll need to assign a commuting cost to each and add
them to the housing expense to see which one is the better
You may also want to assign some value to your time--extreme
commuters burn up at least 15 hours a week getting to and from
work; that time clearly has value. You may also want to determine
ahead of time--before you begin your house hunt--what constitutes
an unacceptable commute so you don't even look in those areas.
Finally, consider the intangibles--can you truly put a price on