Seriously, how do people qualify on 500,000 loans with 80,000 incomes? (Irvine: credit, broker)

[bishop25]

I was told we can do a FHA Loan in Santa barbara up to 620,000 and only have to put 3.5 % down and was curious if any body had any insight on this. If this is correct how much money would we have to earn annually??

[BRinSM]

I believe FHA lenders use a 28/41 calculation for you to qualify for a loan. Your monthly mortgage payment cannot exceed 28% of your monthly income and your total monthly debt obligations (mortgage included) cannot exceed 41% of your monthly income. A household income of $100k would qualify you for a monthly payment of $2333. With a 3.5% downpayment, that would roughly buy you a $420k home.

Be careful though because I've heard lenders are adding additional points to mortgage rates over the original FHA conforming amount $417k. And if you go over the $620k, it becomes a jumbo loan which adds and additional 2-3% onto your rate.

[bhcompy]

there are different limits in each state(and i believe in diff counties in states like CA). the down payment is 3%. the FHA loan i had constructed was 3% down + 3% to closing costs and upfront PMI(as an average in the state i was in, not the actual number).

and as brinsm points out, its based off debt ratio, not what you earn

[Lake Conroe resident]

[quote=bhcompy;6902619]there are different limits in each state(and i believe in diff counties in states like CA). the down payment is 3%. the FHA loan i had constructed was 3% down + 3% to closing costs and upfront PMI(as an average in the state i was in, not the actual number).

Down payment went to 3.5% Jan 1st on FHA's...

[CMartel2]

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 --

Oh, you're about to see how they "afforded" those homes. When the 5-year Alt-A loans and Option ARM loans get recast, you're going to see another massive hemorrage in the real estate market, and this time to a group of even higher income earners.

What's happening is that these option ARMs and ALT-As really started coming into use around 2005 and peaking through 2007. Over the next few years as these get recast, people are going to see their payments jump by as much as 80%. Before they weren't even paying the interest payments on these loans and were speculating that they'd make a profit flipping it or that their incomes would increase. Oops.

So what they're going to find is that it's best to take a massive credit hit and walk, letting the bank suck on a home that's now worth only 70% of what was paid for it. California was by far the most egregious user of these vile loans, and you can see what a 30% hit is going to do on a 500k+ home. It ain't Kansas, anymore...

These homes are going to drive down the prices of homes already hit by the foreclosure market. And the peak of the ALT-A recasting comes in the first quarter of 2011. If you still have jobs and can weather the storm, I'd imagine sometime shortly thereafter would be an excellent time to buy. The losses are not over. Homes will eventually abide by the laws of economics when not propped up by artificial loan schemes.

The ALT-A and Option ARM, by the way, were some of the vilest filth put on our markets--pure time-released poison. Fueled by greed in the banks and the real estate agents looking for comission.

Keep waiting. Homes in the OC are going lower.

[Charles]

Originally Posted by CMartel2

California was by far the most egregious user of these vile loans,

Why?

[sheri257]

Originally Posted by eclipxe

Irvine average and median listing prices

Trulia shows a 14% drop in Irvine. I don't discount the data set you presented, but what is their bias and method of calculation?

I don't find Trulia to be that accurate. Some one thing, they count as a "sale" properties that are seized by the bank during the foreclosure process.

Meanwhile ... 105 houses sold in Irvine last month at the median price of $635K. That's down 11 percent but, still, pretty sticky.

http://www.dqnews.com/Charts/Monthly...ts/ZIPCAR.aspx

[sheri257]

Originally Posted by CMartel2

The ALT-A and Option ARM, by the way, were some of the vilest filth put on our markets--pure time-released poison. Fueled by greed in the banks and the real estate agents looking for comission.

Keep waiting. Homes in the OC are going lower.

The problem with counting on an Alt-A crash is that the majority of resets are in 2011. A lot can happen betweeen now and then ... not the least of which is the economy recovering.

[sheri257]

Originally Posted by eclipxe

For you sheri257:

Mr. Mortgage’s Guide to the TRUTH! » Moody’s Ominous Alt-A Warning - Mortgage Implosion Round 2

"It's the coast for christ sakes!"

I know you are dealing with lots of bidding wars where you are, but when you have the high end facing problems like this...I don't see how you can in good faith think prices won't fall much furhter.

Basically, there's two markets: subprime which for OC would be places like Santa Ana ... and then there's the higher end markets like Irvine where prices have been very sticky.

IMO, subprime areas with 50+ percent depreciation are starting to bottom. The higher end stuff has aways to go but I don't think it's going to depreciate to the extent that the subprime areas have.

My argument isn't that prices aren't going to go down. I just don't think they're going to go down as much as you want them to.

[CMartel2]

Originally Posted by sheri257

The problem with counting on an Alt-A crash is that the majority of resets are in 2011. A lot can happen betweeen now and then ... not the least of which is the economy recovering.

Well, yes, the majority are going to reset in 2011. But there is a growing wave that are going to be recast beginning this year, particularly starting in the 3rd quarter:



As you can see, these loans are going to increase payments on a lot of people by really a minimum of 20% and quickly climbing to above 40% to above 60% to 80%. There are going to be a lot of people who go under or will have extra motivation just to walk.

These are not just rare loans, however. They became very much the mainstream in the housing insanity beginning in 2004. Take a look at the percentage of home loans that fall into this category:



Note that earliest extenstive use of these toxic loans occurred in 2004, 5-years after which is...2009. There is going to be hell to pay in the very near future, and I very much believe our housing market and thus banking industry is going to be rocked again. It should be noted that 60% of these Option ARMs are in California. It should also be noted that in the Option loans, 80% chose the lowest possible amount they could pay for the payment options. They haven't even been paying off the interest of their loans. So not only are their loans now larger than what they originally paid for them, the homes are also worth less. And now the money comes due. You think they'll walk?

Home prices are not going to stop decling in Orange County.

For more, read here:

http://www.doctorhousingbubble.com/s...in-california/