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I'm going to counter the "math" in this thread Let's take the example of Nick eg: "Nick Merz knows how tough it can be. He’s a 41-year-old product designer at

by aresant 10y ago

I'm going to counter the "math" in this thread Let's take the example of Nick eg: "Nick Merz knows how tough it can be. He’s a 41-year-old product designer at Apple Inc. whose wife also works there, and says they couldn’t figure out if they could afford to own a place anywhere near the company’s offices in Cupertino, where the median value is $1.8 million." Glassdoor check for sr product designer = base of $157,000 to a max of $200,000. With 7 years figure he's at $180,000. Figure his wife is in another $100,000 territory as a co-apple employee. So maybe they're at $280,000. With a 20% downpayment they can "afford" $1,931,000 of house (2) Why? Because interest rates are insanely low. But problem for nick and others is that lenders want a 20% down payment because that gets skin in the game. On that $1.931 house that's $386,200 which is damn near impossible to cobble together after dropping crazy SF rents for a decade (or two). My guess is that the bankers are using significant stock options as a swap or partial collateral for that down payment. That's a bet I would take eg: - You've got a guy with a 7 year track record at the most valuable company in the world + his wife there too which is solid income criteria. - You've got him with real skin in his game - his life savings which just happens to be in apple stock and probably will always be worth more than zero, and likely enough to continue working for even in a downturn. - Even if the house drops in value when interest rates go up (which is the most common prediction from mortgage bankers I know) Nick needs a place to live by Apple, is invested in his house, and is as likely as anybody to continue paying a mortgage on an asset that technically is worth less than he paid, but because it's tied to a monthly payment he can "afford", will stay on for the long haul. (1) https://www.glassdoor.com/Salary/Apple-Senior-Product-Design-Engineer-Salaries-E1138_D_KO6,36.htm https://www.glassdoor.com/Salary/Apple-Senior-Product-Design... (2) https://www.zillow.com/mortgage-calculator/house-affordability/ https://www.zillow.com/mortgage-calculator/house-affordabili...

balls187 10y ago
> But problem for nick and others is that lenders want a 20% down payment because that gets skin in the game. Lenders typically charge PMI if you have LTV > 80%. Our first home was purchased with 0 down (perks of being military brat), and no PMI. Current home was ~10% down, with ~$500 in PMI (kind of a cluster-fuck--the mortgage broker said the loan had no PMI, but last minute it had PMI. We had 2 days before closing, and couldn't find a better deal, so we had them drop the rate). Our family income is north of the projected Merz' family income of $290k, and while we could afford that 1.8m home, financially it wouldn't make sense to tie up so much of our income into a house (even though it would be straight baller).
- orky56 10y ago
  Have you tried making extra payments to get your principal up from 10% to 20% sooner? That's the ideal situation for someone with more disposable income but less in savings (or doesn't want to tie up more saving in equity). The main thing to note is that you need to get up to 20% as quick as possible. That's because 20% is based on the current appraisal value of the property, not the purchase price. With Bay Area and other real estate markets appreciating so much, it's a ticking time bomb to get out of PMI.
  - balls187 10y ago
    Actually yes, that is what we're doing. We are (currently) making the equivalent of 1 extra mortgage payment a year, which should reduce the amount of interest that is paid over the lifetime of the loan. That, coupled with the increased value of the house since we've bought it, would help us remove the PMI payment. Doing the Maths, paying the extra 10% down, wouldn't save us much over the length of the loan where PMI applies, so we opted to make an extra mortgage payment instead.
  - jdmichal 10y ago
    > That's because 20% is based on the current appraisal value of the property, not the purchase price. With Bay Area and other real estate markets appreciating so much, it's a ticking time bomb to get out of PMI. I think you have that reversed. If values are rising, you have to do less work to get to 80% LTV (loan-to-value). Example: I put $10 down on $100 worth of stuff with a $90 loan, giving a 90% LTV. If the value of stuff jumps to $120, then that $90 loan is now at 75% LTV, with zero payments made.

by aresant 10y ago

balls187 10y ago

> But problem for nick and others is that lenders want a 20% down payment because that gets skin in the game. Lenders typically charge PMI if you have LTV > 80%. Our first home was purchased with 0 down (perks of being military brat), and no PMI. Current home was ~10% down, with ~$500 in PMI (kind of a cluster-fuck--the mortgage broker said the loan had no PMI, but last minute it had PMI. We had 2 days before closing, and couldn't find a better deal, so we had them drop the rate). Our family income is north of the projected Merz' family income of $290k, and while we could afford that 1.8m home, financially it wouldn't make sense to tie up so much of our income into a house (even though it would be straight baller).

orky56 10y ago
Have you tried making extra payments to get your principal up from 10% to 20% sooner? That's the ideal situation for someone with more disposable income but less in savings (or doesn't want to tie up more saving in equity). The main thing to note is that you need to get up to 20% as quick as possible. That's because 20% is based on the current appraisal value of the property, not the purchase price. With Bay Area and other real estate markets appreciating so much, it's a ticking time bomb to get out of PMI.
- balls187 10y ago
  Actually yes, that is what we're doing. We are (currently) making the equivalent of 1 extra mortgage payment a year, which should reduce the amount of interest that is paid over the lifetime of the loan. That, coupled with the increased value of the house since we've bought it, would help us remove the PMI payment. Doing the Maths, paying the extra 10% down, wouldn't save us much over the length of the loan where PMI applies, so we opted to make an extra mortgage payment instead.
- jdmichal 10y ago
  > That's because 20% is based on the current appraisal value of the property, not the purchase price. With Bay Area and other real estate markets appreciating so much, it's a ticking time bomb to get out of PMI. I think you have that reversed. If values are rising, you have to do less work to get to 80% LTV (loan-to-value). Example: I put $10 down on $100 worth of stuff with a $90 loan, giving a 90% LTV. If the value of stuff jumps to $120, then that $90 loan is now at 75% LTV, with zero payments made.