4 ms·

Imho, the biggest problem (especially in the Bay Area) is that there's such a ridiculous ratio of cash buyers to available properties that even folks who have a

by eitally 11y ago

Imho, the biggest problem (especially in the Bay Area) is that there's such a ridiculous ratio of cash buyers to available properties that even folks who have a typical 20% down payment are still having a hard time buying starter homes in desirable ("close to work") areas. For example, I have $200k equity in my current home (NC) and if I move to the San Jose area that would still require me to put in another $100-200k of savings to "compete" for a mediocre 1500-2000sqft place near work. At that point, I'd be going from a $2k/mo mortgage to a $4k/mo mortgage, plus a 3x in annual property taxes because the home is so much more expensive. I disagree with your "only" incremental additional income requirement in this case, because if the alternative to buying a "cheap" home is paying $4000+/mo rent (I have two kids and need at least a 2BR apt), that just delays home buying even further while I throw away potential DP/mortgage on rent. Perhaps I am being unreasonable because I'm coming from a low CoL state, but I think the 1/3 your salary rule is a very good, smart target (unless you can easily get a HELOC or equity loan in case of emergency because you put so much down when you bought the place).

encoderer 11y ago
"I have $200k equity in my current home (NC) and if I move to the San Jose area that would still require me to put in another $100-200k of savings to "compete" for a mediocre 1500-2000sqft place near work." Do you mean you'd need that $400k down to "compete"? You would have no problem buying a $1MM home on credit with your 20% down. That would buy you a decent place in San Jose. You could also buy the same home with 10% down, though that will require PMI on your mortgage. In either case, I don't believe you would have too much trouble from cash buyers. Yes, cash means a shorter escrow period. But if you offer more than the cash buyer, most sellers will take the higher bid. Your offer would waive your loan contingency (by getting your financing locked-down in a commitment letter).
- rconti 11y ago
  No PMI on jumbo loans. They just require cash reserves. (which, yes, is more money on top of what you have to put down, but there's no requirement that you not spend it once you close). So take that $200k, put down 100, and keep the rest in the bank.
  - encoderer 11y ago
    It's not a big deal but I bought a house in Berkeley 2 years ago and paid pmi for a year until I refid. It was a jumbo loan. So I guess ymmv.
    - rconti 11y ago
      Huh, okay, good to know. Maybe on a per-bank basis. I assumed PMI was just fannie/freddie-mandated and nobody else cared.
rconti 11y ago
You bring up a very good point about the rent "alternative" not leaving much space for savings; particularly these days. I was able to rent a 2bdr house in a very desirable location for $2k in 2011, but by 2014 when I bought a house, this was considered at least $1k under market value (even though they never raised the rent). And, of course, 3 years isn't really enough time to save for a down payment! If 1/3 is $4000, that leaves $8000 to pay taxes (call it 2400 on 12k/mo), which leaves $5600/mo to live off of. I could deal with that.

by eitally 11y ago

encoderer 11y ago

"I have $200k equity in my current home (NC) and if I move to the San Jose area that would still require me to put in another $100-200k of savings to "compete" for a mediocre 1500-2000sqft place near work." Do you mean you'd need that $400k down to "compete"? You would have no problem buying a $1MM home on credit with your 20% down. That would buy you a decent place in San Jose. You could also buy the same home with 10% down, though that will require PMI on your mortgage. In either case, I don't believe you would have too much trouble from cash buyers. Yes, cash means a shorter escrow period. But if you offer more than the cash buyer, most sellers will take the higher bid. Your offer would waive your loan contingency (by getting your financing locked-down in a commitment letter).

rconti 11y ago
No PMI on jumbo loans. They just require cash reserves. (which, yes, is more money on top of what you have to put down, but there's no requirement that you not spend it once you close). So take that $200k, put down 100, and keep the rest in the bank.
- encoderer 11y ago
  It's not a big deal but I bought a house in Berkeley 2 years ago and paid pmi for a year until I refid. It was a jumbo loan. So I guess ymmv.
  - rconti 11y ago
    Huh, okay, good to know. Maybe on a per-bank basis. I assumed PMI was just fannie/freddie-mandated and nobody else cared.

rconti 11y ago

You bring up a very good point about the rent "alternative" not leaving much space for savings; particularly these days. I was able to rent a 2bdr house in a very desirable location for $2k in 2011, but by 2014 when I bought a house, this was considered at least $1k under market value (even though they never raised the rent). And, of course, 3 years isn't really enough time to save for a down payment! If 1/3 is $4000, that leaves $8000 to pay taxes (call it 2400 on 12k/mo), which leaves $5600/mo to live off of. I could deal with that.