Seriously, how do people qualify on 500,000 loans with 80,000 incomes? (Huntington Beach: sale, foreclosures)

[finzup2]

We are seriously considering LB or OC, and are fine renting for awhile, but I really don't get how people have qualified on loans -- and now that prices are high, and loan requirements are tighter, how others will qualify? We will make approx 120,000. but have OUTRAGEOUS student loan debt with payments of 1200.oo a month. The best we could hope to qualify until we get those paid off on typical calculators is about 180,000.00 for a home. That wouldn't buy a 1 bdr condo, LOL.

So, if others make less and have no debt, they be about where we are ... and yet htey have 500,000 homes. I'm missing something, right?

[EscapeCalifornia]

I'm pretty sure the days of $80k qualifying for $500k are over. That's the kind of 100% finance, 55% debt to income, stated income, interest only, apr adjusts in 3 years loan that got us into this mess. If someone has a $500k house on that income, they either bought it just before the credit crunch and are extremely house poor or they bought the house years ago for half the price.

Without the student loans, you should probably be able to afford about a $240 home. Of course that doesn't buy anything you'd want to live in, in an area you'd want to live in. Welcome to the reason so many are leaving. Prices are coming down but coastal SoCal has always been expensive. It just got REALLY expensive for a few years. Even if they get back to inflation adjusted historic averages, you'll still pay the sunshine tax to live in a nice area or wind up spending half your life on the freeway commuting from Corona or Chino Hills.

[finzup2]

Thanks... and I'm resigned to renting for quite awhile! I'm just shocked at the housing prices compared to the median incomes. I don't understand how it worked, even at the peak, that would allow people to so seriously buy over their heads! :-).

[EscapeCalifornia]

Originally Posted by finzup2

Thanks... and I'm resigned to renting for quite awhile! I'm just shocked at the housing prices compared to the median incomes. I don't understand how it worked, even at the peak, that would allow people to so seriously buy over their heads! :-).

The lending businesses lost their minds drastically relaxed loan qualifications. No down payment? No income? No credit? No SSN? NO PROBLEM! Here's a big pile of money to "buy" a house! Any loan increases a person's buying power and these crazy loans increased that leverage which in turn pushed prices even higher which required even more leverage to purchase. It fed on itself until the credit crunch took that extreme leverage away from people.

Now that people can't get those crazy loans and we're back to the days of needing cash down and proving enough income to support the loan, we're finding out incomes in SoCal really aren't 3x what they are in the rest of the country and never were. It was all smoke and mirrors.

[Lake Conroe resident]

Originally Posted by finzup2

Thanks... and I'm resigned to renting for quite awhile! I'm just shocked at the housing prices compared to the median incomes. I don't understand how it worked, even at the peak, that would allow people to so seriously buy over their heads! :-).

Buying homes that were over your head wasn't a problem until everything finally blew up. If you wanted to buy the standard 600-700K home, and didn't really make enough to qualify under conventional methods, you simply got a "stated income" or "no doc" loan. Under these types of loans you simply verified your own income, assets etc, pretty cool huh. If your boss was too much of a %$#& to lie for you, you could simply do it for yourself. Gee wonder what happened, sounded like a great deal.

All kidding aside, it was really just as easy to buy a house as it was a car or T.V. set between 2002 thrugh late 2006. That's why we have the mess we have now with all the foreclosures.

[sheri257]

Originally Posted by EscapeCalifornia

I'm pretty sure the days of $80k qualifying for $500k are over.

Well ... some people are qualifying. Maybe they make a lot more than $80K or, maybe they have a lot of cash and little to no debt but ...

In September:

184 houses in Irvine sold for $580K on average
55 houses in Costa Mesa sold for $514K
139 houses in Huntington Beach sold for $608K

DQNews - California Home Sale Price Medians by County and City

So somebody's qualifying for these mortgages

[spartanic]

Originally Posted by finzup2

We are seriously considering LB or OC, and are fine renting for awhile, but I really don't get how people have qualified on loans -- and now that prices are high, and loan requirements are tighter, how others will qualify? We will make approx 120,000. but have OUTRAGEOUS student loan debt with payments of 1200.oo a month. The best we could hope to qualify until we get those paid off on typical calculators is about 180,000.00 for a home. That wouldn't buy a 1 bdr condo, LOL.

So, if others make less and have no debt, they be about where we are ... and yet htey have 500,000 homes. I'm missing something, right?

Its one reason why the housing industry is so effed up right now with so many foreclosures. I think the industry is finally starting to wake up and realize people who make $80k can't afford $500k homes.

[eclipxe]

Originally Posted by sheri257

Well ... some people are qualifying. Maybe they make a lot more than $80K or, maybe they have a lot of cash and little to no debt but ...

In September:

184 houses in Irvine sold for $580K on average
55 houses in Costa Mesa sold for $514K
139 houses in Huntington Beach sold for $608K

DQNews - California Home Sale Price Medians by County and City

So somebody's qualifying for these mortgages

Just looking at the Irvine number, let's say people had 20% down:
$580,000 - $116,000 = $464,000 mortgage

The median in Irvine is ~ $100k/yr, but that is a bit on the low side - a fairer estimate for Irvine is $120-$140k/yr for a family. Let's use $130k as a baseline -
$464,000/$130,000 = 3.56x income.

This is actually pretty close to a "safe" loan. Of course if the family didn't put down 20% (or put more) the numbers won't work out as well. We have to keep in mind that many knife catchers have been saving for the last 6-7 years and are making the biggest mistake of their lives by buying a home now.

Why is this a mistake if we can make the numbers work out with 3.56x income? Well look at what a $580k place in Irvine gets you...not much. A tiny attached condo. The "average" SFR is still above $580k but we're seeing those prices drop slowly but surely.

Smart money will wait until the bleeding stops before they jump in. Only the foolish would see the current prices as a deal, even if the foolish have the money to buy using a traditional loan.

[sheri257]

Originally Posted by eclipxe

The "average" SFR is still above $580k but we're seeing those prices drop slowly but surely.

Very slowly in Irvine at least. 4 percent down from last year isn't much of a price drop.

[EscapeCalifornia]

Originally Posted by sheri257

Very slowly in Irvine at least. 4 percent down from last year isn't much of a price drop.

It depends on the area. I read recently that one zip code in Irvine is down a lot. Something like 20% in the last year. I know a couple that bought a house in Irvine (tiny little house with literally zero yard that looks like an apartment building except they're actually SFRs) in 2006 or 2007 for I believe $700k. It was the last unit sold in the project and they actually got it for a lot cheaper than some of their neighbors. They put over 20% down and are still upside down by $50k or so not including transaction costs were they to actually attempt to sell it today.