What kind of homes do singles buy in OC? (Santa Ana: apartment, foreclosed)

[Lallo]

20% down is not needed. This is a fact but you can bet that the loan will not get done without having all your ducks in order. Good job, solid credit score, low dti, etc.

[EscapeCalifornia]

Originally Posted by bowneline

I agree in principal, but that is just not often workable in OC for first time home buyers. 20% down? The medium price for a house is in the $400,000 to $500,000 range.

So, with 20% down and closing costs, a buyer needs to be looking at close to $100,000 cash in the bank. If you have a young family, and are worried about being in decent neighborhood, then you will probably need more than that.

$100,000 cash in the bank? How is that possible for a young couple in their 20's or 30's with a family?

And if you do have that kind of money in the bank, its not smart to put it all into a house and leave yourself cash poor. So you'd need even more than that to have 20% down and a safety net. The only people I know putting that kind of money down on a first home all make six figure incomes and lived with their parents or in crappy apartments forever.

[a34dadsf]

Originally Posted by EscapeCalifornia

And if you do have that kind of money in the bank, its not smart to put it all into a house and leave yourself cash poor. So you'd need even more than that to have 20% down and a safety net. The only people I know putting that kind of money down on a first home all make six figure incomes and lived with their parents or in crappy apartments forever.

Here is the bottom line. Orange county is a very expensive place to live. The guidelines are 20% down and payments not exceed 30% of take home pay. That's the definition of being able to afford a home, according to FHA. If you are going below 20% down then you cannot afford to buy. If you can't save up 100-200k cash to put as down payment then as I've said, cannot afford to buy.

Now you can still buy a house without the down payment but you face higher risk of foreclosure if you can't make the increased payments. Personally, this is a risk I would not take. I'd rather just save up and buy a home outright, even if that means living at home for a couple years to save up the cash. Its completely worth it IMO.

Also, if you are cash poor you can still run up the credit cards and then bankrupt out of them. Primary home is protected in bankruptcy to a certain extent.

The bottom line is that if you are in it for the long haul, buy a house you can see yourself in for 10+ years, have a good career and solid debt/income ratio, then I think buying a house with a lower downpayment is fine -- especially when a 20% down payment is just not possible.

Regardless, if you can't put the 20% down, you cannot afford the home. Buy a cheaper home or just rent. I've seen alot of people get in trouble (as in losing everything) because they had this, "keeping up with the Jones" mentality. I cannot afford it but I'm going to buy it anyway is not good.

[Dean Trails]

Originally Posted by k374

I just wanted to know the type of homes that single professionals in mid 30s with decent incomes (say $75-80k/yr) are buying these days or should expect to buy as a starter home? What are the realistic expectations as to type of home affordable to such a person using conservative metrics?

By conservative metrics I mean someone with a typical debt load for the age group: not house poor - i.e. still able to have a comfortable lifestyle and able to save a good amount towards retirement, have an emergency fund etc.

Assume a 10% downpayment as at current prices, 20% downpayment seems quite a stretch for the typical person.

Location, location , Location. Live in the nicest, most secure and beautiful neighborhood you can find. Make sure it has good schools and decent water and perhaps a view?

[bowneline]

Originally Posted by a34dadsf

Now you can still buy a house without the down payment but you face higher risk of foreclosure if you can't make the increased payments.

What are these "increased payments" you speak of? If you get a 30 year fixed mortgage (which was part of the criteria I listed for making it okay to buy a house with a low downpayment), then the payments and the interest rate stay the same through out the 30 years. Therefore, if the buyer's salary allows him to make the payments now, unless something unexpected happens, he should be able to make the payments indefinetly.

Originally Posted by a34dadsf

Regardless, if you can't put the 20% down, you cannot afford the home.

I don't agree with your terminology. What do you mean the buyer can't "afford" the home? If the buyer can comfortably make the payments, it seems he can afford the home, regardless of what the downpayment is. Under your definition, if a buyer puts 3% down, makes the payments for 30 years and then owns the house outright, he couldn't "afford" that home. That doesn't make sense.

The bottom line is, in my mind, that the most important thing is debt/income ratio. If the buyer can afford the payments, and has a stable job so that he will likely be able to afford the payments indefinetly, then he can afford the home.

The larger downpayment is just an added element that gives the bank extra protection for it's investment. But, if the bank determines that it is willing to lend to someone with a 5% downpayment, then why would the buyer have to call off the deal?

I agree that down payments are an important element to buying a house, and are generally a good idea, but they are there to protect the bank, not the buyer, and it seem crazy that a buyer would plan his life around trying to get a certain arbitratory percent of downpayment, all for the bank's protection.

For example, if the buyer has a solid job, can comfortably afford the payments (30 year fixed), and the bank is willing to lend the money, it would seem crazy for the buyer (and his/her family) to rent for several more years, while cutting out all frills to save money for the downpayment, or, worse, buy a cheaper house in a bad/dangerous neighborhood -- all just to be able to make some arbitratory percentage of downpayment (to give the bank more protection?). You have to live your life.

Originally Posted by a34dadsf

Buy a cheaper home or just rent.

Seriously, just to help the bank out?

And, the banks agree with me. If they see a buyer with solid credit, good job and a good debt/income ratio, they are lending right now with a downpayment as low as 3%. They have determined that such a buyer can afford that home. I don't see any reason to disagree with them.

[Coldjensens]

Originally Posted by nurserosie

. . . .obviously you cannot afford to buy in the OC...

No one can afford to buy there. It does not exist. It is an imaginary place made up by television producers.

[Coldjensens]

Originally Posted by bowneline

What are these "increased payments" you speak of? If you get a 30 year fixed mortgage (which was part of the criteria I listed for making it okay to buy a house with a low downpayment), then the payments and the interest rate stay the same through out the 30 years. Therefore, if the buyer's salary allows him to make the payments now, unless something unexpected happens, he should be able to make the payments indefinetly.

Usually taxes and insurance are impoounded. Even under prop 13, taxes go up a little and insurance sometimes goes up a lot, so this could result in creased payments even with a fixed rate loan.

[Podo944]

Originally Posted by k374

I just wanted to know the type of homes that single professionals in mid 30s with decent incomes (say $75-80k/yr) are buying these days or should expect to buy as a starter home? What are the realistic expectations as to type of home affordable to such a person using conservative metrics?

By conservative metrics I mean someone with a typical debt load for the age group: not house poor - i.e. still able to have a comfortable lifestyle and able to save a good amount towards retirement, have an emergency fund etc.

Assume a 10% downpayment as at current prices, 20% downpayment seems quite a stretch for the typical person.

Rule of thumb is 2.5 percent of your annual income, so I wouldn't go more than about 200K. Also depends on where your work is, and how far you can reasonably commute without spending too much on gas and/or toll fees.
There are small condos around for that price and under. Not fancy, and most will have carports only. But if your payments including HOA etc. are about what your paying in rent, perhaps it will be worth it providing you plan to stay put for a while.
Get prequalified and if a real estate agent gets to pushy about spending more, find another one.
Good luck.

[mysticaltyger]

Originally Posted by bowneline

The bottom line is, in my mind, that the most important thing is debt/income ratio. If the buyer can afford the payments, and has a stable job so that he will likely be able to afford the payments indefinetly, then he can afford the home.

The biggest problem I see with this kind of thinking is that this is not the 1950s. Very few people, including professionals, have stable jobs and incomes these days. This situation is made even more unstable when both incomes are used in 2 income households to qualify for mortgages. This "2 incomes but financially unstable" phenomenon was well documented in the book The Two Income Trap written by Elizabeth Warren, who was Obama's top nominee for consumer protection czar (or whatever they call it).

Amazon.com: The Two-Income Trap: Why Middle-Class Parents are Going Broke (9780465090907): Elizabeth Warren, Amelia Warren Tyagi: Books

[seain dublin]

Originally Posted by bowneline

In fact, you can get a loan with less then 20% down.

Between my friends and co-workers, I know about a dozen people who have bought homes in OC within the last 2 years with anywhere between 3% and 10% down -- most through FHA (mine was FHA, through Wells Fargo).

And I can guarantee very few of them, or perhaps none of them, will forclose. These are all solid young professionals with good careers, good credit and roots in the community who will be in those houses for a long time. The banks see this, and that is why they are still loaning to these type of people. These are all people who plan well and have the incomes to make those payments and continue to save money, and who go with a 30 year fixed (not any of those crazy adjustable rate scams). Yes, its very likely that the homes might go temporiarliy underwater a bit during the next couple of years while the market bounces around, but its a long term investment and place to raise a family -- not a get rich quick scheme.



I disagree. I think affording a house should have more to do with your income and your ability to make the payments (credit, job history etc...) -- then it should about having the downpayment. Banks/FHA agree too, and that is why they will still loan to solid young buyers with a low down-payment.

If your argument is that you can't get a mortgage with less then 20% down, then your facts are dead wrong.

If your arguement is that it is foolish and fiscially irresponsible to get a mortgage if you don't have 20%, then I disagree with you -- if you have the right buyer: good job, good credit, good debt/income ratio, plans to stay long-term, 30 year fixed rate mortgage.

You can't predict the future. To say none of your coworkers or friends won't end up in foreclosure is a ridiculous statement in this economy.

I know a few people who thought like that, and you know what, it hits them the hardest when they lose their jobs.

People who are putting less than 10% down on a house are people who either live above their means or didn't save properly.