Real estate, CA, Down payment (San Diego: appointed, short sale, apartment)

[caroline3]

I would like to know if a 20% down payment is mandatory in California, especially in the area of San Diego?
Thanks for your help.

[ubringliten]

No, it's not mandatory. But it will make it easier to get a loan.

[zippingalong]

FHA loans are 3.5% down. But you would have private mortgage insurance added to your payment, with less than 20% down.

[Dr. Vox]

^20% down,750 and up credit scores, and and watch how quickly your escrow will be able to close. Those 2 things with a good job will make it a walk in the park to get something. I would recommend an FHA loan. The problem why some owners won't accept them, is because FHA requires that certain things be present upon move in(stove, microwave, dishwasher)- this is why many owners tend to prefer conventional, VA or cash options, much less red tape. However, for a buyer, FHA is a great way to go if you can. Jusr remember the three keys when buying 1) Great debt/ income ratio 2) Excellent credit score(700 and up), 3) 20% down payment ...

[earlyretirement]

Personally, I've always believed if you don't have at least 15% to 20% down payment you shouldn't really be buying.

I really believe people ought to have more "skin in the game" before they buy a house. JMHO.

[Dr. Vox]

^ Mostly agree with that statement, but if the person has shown an excellent credit history of repayment, they have been in a secure position for 2 years and up, and they have other assets(retirement packages( 401k/403b plans), and lifestyle factors(i.e. live below their means). I actually knew a couple(albeit in Henderson,NV), who only put 3.5% down, on a beautiful home, in a great neighborhood. Their mortgage ended up being half of what they paid for rent every month, and the home included a full 2 year warranty, with all Wolf appliances. In California, as I fully aware, that is much more difficult to pull off.

[whiteboyslo]

Required? No, but what WILL happen is that, should you find a good deal and there are multiple bids (yes, that still happens), your bid will probably lose out against someone who has more money to put down. We had it happen a couple of times.

The other downside to not having 20% is that you'll end up with PMI on the mortgage. However, we got out of that on ours by refinancing a few months after the sale. We bought a short sale on a good deal and put down about 17%. But when we refinanced, the house was re-appraised at much higher than we purchased at, enough to drop the LTV to below that magic 80%. So, not only did we get a much better APR, we also dropped PMI. Just something to keep in mind.

Mike

[shmoov_groovzsd]

Originally Posted by Dr. Vox

^ Mostly agree with that statement, but if the person has shown an excellent credit history of repayment, they have been in a secure position for 2 years and up, and they have other assets(retirement packages( 401k/403b plans), and lifestyle factors(i.e. live below their means). I actually knew a couple(albeit in Henderson,NV), who only put 3.5% down, on a beautiful home, in a great neighborhood. Their mortgage ended up being half of what they paid for rent every month, and the home included a full 2 year warranty, with all Wolf appliances. In California, as I fully aware, that is much more difficult to pull off.

Precisely. The variance in RE for rent to own ratios are not even a close comparison based on the above. Which is a pro or con depending on how you look at it.

I am indifferent on whether its 0% or 20%+ especially in San Diego which has a strong military presence and outrageous RE valuations.
Based on the above metrics to evaluate credit worthiness, I agree completely with ability to obtain a sub 20% down loan based on risk assessment. However there should be many options off the table when it goes below 20% or there are govt assisted programs for down payment (eg. caps on mortgage deductions and cap on profits realized from the sale within a certain threshold). So get dinged on PMI and have limited deductions available. That FHA cap needs to be lowered too.

This is typically why, on the side of caution, when folks post on here that they are looking/are moving to SD, its ideal to be prepared for that eventual sticker shock.
I have to admit for the friends and colleagues out here that earn a solid salary, they are always disappointed in the overall COL and compromises to own here. Its sort of bittersweet for them and I have seen at least half move for greener pastures elsewhere outside of CA because they just felt the value for them was not up to par.
Mind you these are people that work more than enjoy the best of SD. They can raise their families, have great schools and are willing to trade off the weather for it.

Thats why the 'if you can afford' to live in San Diego mantra holds. Its superb. Otherwise, if you work a job 10+ hours a day 5-6 days a week, its pointless.
Its one thing to pay a mortgage in a really nice area, its another to actually live comfortably, furnish the house and pay that mortgage or own outright.

[earlyretirement]

Originally Posted by Dr. Vox

^ Mostly agree with that statement, but if the person has shown an excellent credit history of repayment, they have been in a secure position for 2 years and up, and they have other assets(retirement packages( 401k/403b plans), and lifestyle factors(i.e. live below their means). I actually knew a couple(albeit in Henderson,NV), who only put 3.5% down, on a beautiful home, in a great neighborhood. Their mortgage ended up being half of what they paid for rent every month, and the home included a full 2 year warranty, with all Wolf appliances. In California, as I fully aware, that is much more difficult to pull off.

Sure, there are a few situations where it probably makes sense. But in the vast majority of the situations I've seen, people that bought a house and put down a very small down payment really couldn't afford the house. Many people just over leverage, have too much debt or eventually taking on too much debt, etc.

So again, I'm sure there are situations where it's fine but I still believe that people should save up and not take on too much leverage. Even when credit is cheap. There are still countries out there where you aren't buying a property until you save up 100% and pay in cash. No financing.

And you know what? I've owned companies in foreign countries where I pay employees a fraction of the price as I pay my US employees and the ones in the foreign country still have a higher net worth and end up buying an apartment with cash and own their properties outright, while their US counterpart employees who make a much higher salary either never can afford to buy, or they bought and are way upside down on their property and have NO equity, negative equity or already lost their properties.

The biggest difference is they don't live above their means. They don't buy expensive, fancy cars. Most live at home with their parents until they are in their late 20's or some even 30's. They don't buy the latest ipad, iphone, gadgets. They save save save until they can afford to pay cash for their properties.

I guess my outlook on debt and leveraging just drastically changed once I started living abroad.

So again, I'll reiterate my opinion that the vast majority of the people out there shouldn't be taking on too much debt or leverage and should have higher down payments. You have to understand why the government is so desperate for people to buy houses and why they have the FHA and other governmental programs in place that allow such measly 3.5% down payments.

Originally Posted by shmoov_groovzsd

This is typically why, on the side of caution, when folks post on here that they are looking/are moving to SD, its ideal to be prepared for that eventual sticker shock.
I have to admit for the friends and colleagues out here that earn a solid salary, they are always disappointed in the overall COL and compromises to own here. Its sort of bittersweet for them and I have seen at least half move for greener pastures elsewhere outside of CA because they just felt the value for them was not up to par.
Mind you these are people that work more than enjoy the best of SD. They can raise their families, have great schools and are willing to trade off the weather for it.

Thats why the 'if you can afford' to live in San Diego mantra holds. Its superb. Otherwise, if you work a job 10+ hours a day 5-6 days a week, its pointless.
Its one thing to pay a mortgage in a really nice area, its another to actually live comfortably, furnish the house and pay that mortgage or own outright.

Shmoov. I totally agree with this and I too have seen several friends move out to other areas that were more affordable (especially the housing). Also, many people just buy more home than they can afford. I've had friends were both spouses were working but then got laid off and they just couldn't find a high enough paying job and couldn't afford their lifestyle here. So you have to take a close look just how much you can bring in and how much your monthly financial obligations are. I've seen many people project a best case scenario and things didn't turn out so rosy for them. Best always to be super conservative with your planning for San Diego.

Even in our daughters school we've seen several families stream in and out as they end up moving out of San Diego after a relatively short amount of time.

[shmoov_groovzsd]

Originally Posted by earlyretirement

Sure, there are a few situations where it probably makes sense. But in the vast majority of the situations I've seen, people that bought a house and put down a very small down payment really couldn't afford the house. Many people just over leverage, have too much debt or eventually taking on too much debt, etc.

So again, I'm sure there are situations where it's fine but I still believe that people should save up and not take on too much leverage. Even when credit is cheap. There are still countries out there where you aren't buying a property until you save up 100% and pay in cash. No financing.

And you know what? I've owned companies in foreign countries where I pay employees a fraction of the price as I pay my US employees and the ones in the foreign country still have a higher net worth and end up buying an apartment with cash and own their properties outright, while their US counterpart employees who make a much higher salary either never can afford to buy, or they bought and are way upside down on their property and have NO equity, negative equity or already lost their properties.

The biggest difference is they don't live above their means. They don't buy expensive, fancy cars. Most live at home with their parents until they are in their late 20's or some even 30's. They don't buy the latest ipad, iphone, gadgets. They save save save until they can afford to pay cash for their properties.

I guess my outlook on debt and leveraging just drastically changed once I started living abroad.

So again, I'll reiterate my opinion that the vast majority of the people out there shouldn't be taking on too much debt or leverage and should have higher down payments.

Exactly. Generally speaking most Americans that I know that have not lived abroad dont know how easy it is to obtain credit even though by US standards right now, its considered difficult.
When I lived in Spain and Italy, it was not uncommon to find guys and gals well into their 20s living at home working really good jobs because they had to save all that cash for a place of their own. Financing and the how it is viewed is just a different world outside the US.
Want to finance a car out there? Good luck not paying an outrageous APR for a loan, let alone the price of the car itself.