Instructions to my son on how to buy a house in the SF Bay Area (Oakland: low income, sale)

[boulder2015]

Originally Posted by TR95

??? How is this applicable to my post? I'm not Body.

Sorry, should have split up the posts. I was replying to you at first, then to body. Not very clear on my part. Nothing personal towards you, but i realized what a lot of the disconnect is on this topic. Many realtors have trained a generation of buyers to focus more on interest rates, monthly payment, and much less on principal. They advertise based on price (which people intuitively know is the most important part).. then spend most of the time talking about low rates, monthly payments, etc. So yes, in a sense, you can still get into a mortgage... but the full cost is just brutal in the bay these days. Free country, people can lock themselves into a $3000 mortgage payment for an ok house in hayward for 30 years if they want... they can afford that now... but what if that crash that many cd forum posters seem to root for happens? For those of us who saw previous bay busts, we know the answer....

[TR95]

Originally Posted by boulder2015

Sorry, should have split up the posts. I was replying to you at first, then to body. Not very clear on my part. Nothing personal towards you, but i realized what a lot of the disconnect is on this topic. Many realtors have trained a generation of buyers to focus more on interest rates, monthly payment, and much less on principal. They advertise based on price (which people intuitively know is the most important part).. then spend most of the time talking about low rates, monthly payments, etc. So yes, in a sense, you can still get into a mortgage... but the full cost is just brutal in the bay these days. Free country, people can lock themselves into a $3000 mortgage payment for an ok house in hayward for 30 years if they want... they can afford that now... but what if that crash that many cd forum posters seem to root for happens? For those of us who saw previous bay busts, we know the answer....

Ok, got you. Not sure that the realtors have really trained certain buyers. My financial sense doesn't get influenced by interest rates on whether I buy or sell. Sure, everyone is paying more for houses nowadays, but then again salaries are significantly higher compared to the early 90s. I know my field alone went from $24K starting salary in 1989 to $60k+ now. Trouble is we paid new college graduates $55k-$60k in 1998 so it really hasn't increased much since then.

I ran this scenario for a house bought in 1989 and now, but guess people couldn't understand the math behind it, but not sure I care to educate some random people on the internet. Have enough trouble doing that in the workplace today with people that can't comprehend what they read or even read through what they should.

[CA4Now]

Originally Posted by bodyforlife99

You don't have to come up with 20% now if you don't want to either (in fact, you can put roughly that same down payment you would have put on the $120K house you speak of if you choose).

And then you're financing a much larger amount.

[Ultrarunner]

Originally Posted by PeaceOwl

I have to say, from one who has been in the house hunt in SF area for 18 months, that qualifying for a loan back then was easier than now. And for those considering right this moment, buy a fixer upper so the taxes don't riddle you to the poorhouse. The homes in SF have gone up over $200,000 more in 18 months. It's extremely hard to beat out the "sellers market" and it may not be a great investment today. Waiting for a few years may save you a lot of money in the long run when the market calms down. Or at least until next winter. They literally are going up monthly right now, many selling above ask price, requiring a bidding war that can push you over affordability.

You might be ok to invest if you have the time to research the market and have the cash to upgrade and the income to qualify. But right now pre-qualifying is very difficult. It's probably harder right now than ever before.

Qualifying for a loan and getting the house approved with much harder back then...

Needed 3 years in the same line of work and 2 years for the same company... a solid 20% down was standard unless you had VA or FHA.

Thing is most of the affordable homes simply did not qualify for these low down loan programs... the home standards were very high...

Lenders wanted to see 6 months minumum of living expenses after closing.

Before the bubble... it was anything goes... even cash out at closing... as-is purchases and no doc loans with little down...

I had been working for 10 years steady and had no chance to qualify and had saved 20% downpayment...

Being a fresh engineering graduate I was told to come back with 3 years work history in my field...

It was a buyers market just 4 years ago and many places... areas of the Bay Area had lost 20 years of appreciation and interest rates were at record lows...

Owning/buying had fallen from favor... people were smug renting at half the monthly cost to own and let someone else take care of maintenance...

[Ultrarunner]

Originally Posted by CA4Now

From your link, above: According to the Census Bureau, the average cost of a home in 1981 was $82,500.
The average cost of a home today is $322,700.

There's quite a difference between a down payment on the average home in 1981, which would have been $16,200, and the down payment on the average home today, around $64,500.

(And there are few homes worth buying today, at least in this state, for $322,700.)

Please realize in 1981 had record high unemployment... the highest since the Great Depression...

[bodyforlife99]

Originally Posted by CA4Now

And then you're financing a much larger amount.

Of course. But you were the one saying people couldn't get a down payment.

[CA4Now]

Originally Posted by boulder2015

i realized what a lot of the disconnect is on this topic. Many realtors have trained a generation of buyers to focus more on interest rates, monthly payment, and much less on principal. They advertise based on price (which people intuitively know is the most important part).. then spend most of the time talking about low rates, monthly payments, etc. So yes, in a sense, you can still get into a mortgage...

You're definitely right.

[jade408]

Originally Posted by bodyforlife99

The mid 70s through the first 2-3 years of the 80s were not exactly fun times. Inflation was out of control (3 of the years had double digit inflation from 11-13 if memory serves me correctly). In 1982, mortgage interest rates peaked at 17.5% (nearly 5 times our low just a few years back). Think about that for a second. If you bought during that time, mortgage on that $110k house amount with property tax and insurance would have been roughly $1800. On a dual income of $50K, you're looking at the low 40% on the income you would have to allocate. But of course Ruth, you and Mountain shouldn't bring things like that up. No one here wants to hear about that (it ruins the sky is falling narrative). It's easier to dwell on the negative.

I don't know about this dual income thing. It certainly wasn't the case in my middle class childhood South Bay neighborhood. Few people had moms who worked. My my didn't, my dad's income was enough for them to buy a home. Few of my neighbors had working moms.

The dual income thing is more of a 90s phenom.

[bodyforlife99]

Originally Posted by jade408

I don't know about this dual income thing. It certainly wasn't the case in my middle class childhood South Bay neighborhood. Few people had moms who worked. My my didn't, my dad's income was enough for them to buy a home. Few of my neighbors had working moms.

The dual income thing is more of a 90s phenom.

Maybe your Dad and the fathers in your neighborhood earned more. Not sure what to tell you. I remember working for a grocery store in 79-80 and the journeyman clerks made $11 an hour. That's only $23K a year. No one on that job could have gotten a house. Not sure on cops and other professions, but we definitely had dual incomes in my neighborhood. My household was actually the exception, but my father worked 7 days a week.

[2sleepy]

Originally Posted by jade408

I don't know about this dual income thing. It certainly wasn't the case in my middle class childhood South Bay neighborhood. Few people had moms who worked. My my didn't, my dad's income was enough for them to buy a home. Few of my neighbors had working moms. The dual income thing is more of a 90s phenom.

That was my experience in Northern California. And I never saw 17% mortgages, 13% for a while, but there were plenty of opportunities to assume mortgages at much lower interest rates. In fact in 1985 I assumed a loan with no credit check or qualifications, it was a 9% 30 year fixed loan, I gave the seller $20,000 for his equity and moved in a month later. In 1991 I refinanced it at 7%. I was a single mom with 2 kids, even at 9% my house payment was about 30% of my gross income.