How on earth do people afford to buy in SF? (rant) (Oakland: condos, mortgage broker)

[bmw335xi]

Originally Posted by Ultrarunner

Just a comment on borrowing...

Interest is certainly rock bottom... the problem is actually getting the rate.

Not a single person I know that has refied or attempted has a good experience to relate.

Even my seasoned professional mortgage broker friend says lenders are incredibly difficult... even those with outstanding credit are jumping through the hoops.

When I bought my first home with a mortgage years ago... prices were severely depressed because interest rates were as much as 15%.... I was lucky at 13.5% because it was an adjustable.

As rates declined, property values increased and my adjustable adjusted downward each year...

It was kind of a win/win.... friends that thought I was crazy for buying with such a high mortgage interest later said I was smart or lucky to get in when I did...

2011-12 will be looked at as another golden window of opportunity...

Lenders have tightened their guidelines since the collapse. However, it shouldn't be an awful process nor should it be difficult to get a low market rate if you are qualified. It should be a walk in the park if your LTV is below 80%, your credit is good and you have two years of income. Send me a message if you want a referral to a trusted mortgage broker.

[bmw335xi]

Originally Posted by sliverbox

We had no issue getting our rate, which was around 3.4%. That said... we both had nearly pristine credit. As in around 800. Having stellar credit is about the only way to get rates like these. The downside of low rates is that money becomes cheap and therefor that drives up housing prices as people's spending power increases as a result.

Credit makes no sense to me. I've never owned a credit card. Yet I had very good "credit", which I thought meant that you had a credit history.

Anything over 740 makes no difference when it comes to rates. If someone has a 740 score and another person has a 800 score and everything else is the same, the rate will also be the same.

[beb0p]

Originally Posted by JrsyGal

I've been thinking about these numbers since reading this yesterday, and I'm having a hard time getting things to add up. As a young couple starting out in their 20s, it's unlikely they would have been bringing in $150k annually, and would have had things like student loans to contend with. Even for the most disciplined saver, I think it would be a big stretch to save $200k over 10 years.

Now, they go to look for a house. Even with a $200k down payment, I don't see how they can afford a house in the $750k range. The mortgage might be $3,000/mo, but what about property taxes and insurance? I imagine that would be another $1,000/mo, causing their monthly housing expenditure to eat up half of their take-home pay.

Of course nothing is impossible, but I don't see that scenario as being realistic for most people. We're considering a move from NJ and are trying to figure out how to make it work. We've got two kids in middle school to think about, so it's looking more and more like renting is our only possibility.

Fresh grad typically paid about $50k-$60 when they came out of colleges (obviously I'm talking about in-demand professions). I have friends in tech who were paid $80k-$90k as a fresh grad but let's just focus on the $50k-$60k group, shall we. Combined the couple is probably pulling in around $115k or so. If all they do is save 13% every year (remember, the expert said one should save at least 10%), they'd have around $150k after ten years. That's assuming they never get salary increases and save barely above the minimum recommended. Now if they have a modest 3% salary increase every year. They'd have around $200k after ten years assuming they kept saving 13% every year.

Student loan - not everyone is burdened by it. I went to a public university and I have no student loan. None of my classmates have student loans. My tuition was $1,250 a semester. Even if there is student loan, some people make enough to cover it and still save 13%. Obviously for someone burdened by student loan, it's a different ballgame and probably won't save enough. But the point is, not everyone is dragged down by it. If this is easy, then most people would be able to buy in SF, wouldn't they?

With today's rate, that mortgage is $2,500 (assuming 3.6125% mortgage rate), not $3,000. A $750k house with $200k down = $550k borrowed = $2,500 monthly mortgage. With insurance + property tax = around $3,500k a month. Is it a lot of money? Sure. Is it doable for a couple making $150k? Of course. It's roughly 43% of their take home pay. And if you ask around the city, some people are indeed paying that much for their house.

Now if that couple rent out the in-law unit for $1,000 a month, then their monthly mortgage+insurance+property tax is lowered to $2,500 with help from the rent money; about 31% of their take-home pay and much more in line with norm. I'm not here to argue the merit of renting out in-law units, but there are many, many people all across SF who is doing just that.

If you don't know about the in-law units, they are basically basement/garage living units, often illegal and have separate entrances. Many single family homes have them especially those in the more affordable (relatively speaking) part of the city.

[beb0p]

Originally Posted by bmw335xi

$900k wouldn't be possible in this scenario, even if they used their entire combined savings to avoid PMI.

$900k -> $100k down payment -> $800k loan amount 3.5% -> $1k property tax = $4,500

This is already a DTI of 56%, which wouldn't qualify for a loan. You still would have to add monthly credit card bills, auto loans, PMI etc, which would make your DTI even worse.

A $650k loan under these circumstances would be really pushing it. If the borrowers have car loans and/or credit debt, they would most likely have no chance obtaining a loan.

$900 -> $180k down (20%) -> $720k loan @ 3.6125% -> $1100 property tax + insurance = $4,400

Rent out the in-law unit for $1,000 / month, the total is lowered to $3,400.

This is not ideal but if a couple really want to stretch, they can.

If the lender wouldn't lend because of debt to income ratio, add a sibling or parent's name to the loan to increase the income. I know two couples who did just that. Again, not ideal, but can be done and some have done it.

[sliverbox]

This is not ideal but if a couple really want to stretch, they can.

There's no way I'd even entertain that notion. $4,000 a month in housing costs is getting close to being really risky. In my opinion any couple buying a house needs to consider if they can pay for it come the day one of them becomes unemployed. A couple making 150k a year means that if one of them becomes laid-off, suddenly close to 100% of their take-home after taxes pay will be going to the mortgage. That's simply too much risk.

[ssmaster]

Originally Posted by sliverbox

There's no way I'd even entertain that notion. $4,000 a month in housing costs is getting close to being really risky. In my opinion any couple buying a house needs to consider if they can pay for it come the day one of them becomes unemployed. A couple making 150k a year means that if one of them becomes laid-off, suddenly close to 100% of their take-home after taxes pay will be going to the mortgage. That's simply too much risk.

or they have a kid who does not get a good draw in the school lottery so they have to come up with another $15,000-$20,000 a year for private school.

[sliverbox]

or they have a kid who does not get a good draw in the school lottery so they have to come up with another $15,000-$20,000 a year for private school.

Exactly. This might sound negative, but in my opinion, anyone who buys a home needs to consider the WORST possible situation such as if one or both of you become unemployed. It seems that many people buy and assume that their current financial situation is permanent which as we all know these days is so far from the truth its absurd.

[Tallysmom]

Originally Posted by bmw335xi

Anything over 740 makes no difference when it comes to rates. If someone has a 740 score and another person has a 800 score and everything else is the same, the rate will also be the same.

Unless you're self employed. Heard several ads with great rates and they all said if you are self employed you will not qualify.

Jeez -- we've owned our own business for 15 years, we've never NOT made a tidy profit and we have tax returns that back it up.... and we have investments to pay our house off 7 times over.... (all tied up in case anyone asks)

And I guarantee you they won't qualify us.

[Ultrarunner]

Originally Posted by Tallysmom

Unless you're self employed. Heard several ads with great rates and they all said if you are self employed you will not qualify.

Jeez -- we've owned our own business for 15 years, we've never NOT made a tidy profit and we have tax returns that back it up.... and we have investments to pay our house off 7 times over.... (all tied up in case anyone asks)

And I guarantee you they won't qualify us.

This is so true... especially where we both live...

A co-worker told me of a good rate and term and when I read the fine print... it said must own only one property...

Not sure why that would matter... it would seem a person with a couple of paid off homes wouldn't be a bad thing

Here's another one for those that have a rental... they take all the numbers over several years and go through everything to make sure it is all properly reported and then toss/slash 25 to 40% of the income...

[eastbayhopeful]

Originally Posted by Ultrarunner

Just a comment on borrowing...

Interest is certainly rock bottom... the problem is actually getting the rate.

Not a single person I know that has refied or attempted has a good experience to relate.

Even my seasoned professional mortgage broker friend says lenders are incredibly difficult... even those with outstanding credit are jumping through the hoops.

When I bought my first home with a mortgage years ago... prices were severely depressed because interest rates were as much as 15%.... I was lucky at 13.5% because it was an adjustable.

As rates declined, property values increased and my adjustable adjusted downward each year...

It was kind of a win/win.... friends that thought I was crazy for buying with such a high mortgage interest later said I was smart or lucky to get in when I did...

2011-12 will be looked at as another golden window of opportunity...

The problem is finding a lender that will work with you and get your loan closed.

I'm not trying to harp on the big banks, but with interest rates at rock bottom and so many people jumping to re-fi, yeah, I bet some borrowers fell through the cracks. I work for a smaller lender and if an extension is needed because of our turn times or delays, we pay for the costs. All of a sudden asking for $3000 in extension fees before close was shady, especially if you provided up to date documentation in decent amounts of time. That being said, sometimes borrowers hold us up by not giving us documents we've asked for PLENTY of time in advance (as in, weeks) and then they get to pay for the re-lock. Also keep in mind that the longer the lock time, the worse your rate gets. These advertisements for the really absurdly low rates are for a short lock period which then means you get to pay extension fees.

The banks are making it difficult but it's not out of the question at all. I just don't understand why everyone flocks to Quicken Loans etc. and wonders why they had a bad lending experience. It's like going to Walmart and expecting a personal shopper.


FYI, we lend to self-employed clients and those with multiple homes at the same rates as those without. If it's more work for the bigger and/or crappier lenders they won't deal with it. And our rate sheet looks the same as Wells, BofA, etc. Again with the Walmart analogy...