patrick.net

pkennedy, agree.
However let me ask a question, that is not part of your key messages.
You said "I’m betting that you will have a couple of calm years to save up though. This will give you time, and your husband to really save up. If you can save up while renting a 1b1b for 3 extra years, you’ll be in a great place to put some serious money down on the house you want."

So what do you call "serious money" in
- % of purchase price,
- factor of annual salary
- % of annual gross income
- or perhaps an absolute amount?

Example Answer
- 50% of purchase price where price is 1Million or below
- 5x the annual salary before taxes
- 60% of annual gross income over 5 years
- minimum of 500K

p.s. I really do agree that it is easier and better to purchase a large investment such as a house together. Sadly my current BF is not in a position to do, due to personal problems. I am not the only bread-winner, but he can only contribute in terms of helping around and some rent, hence would not be on the DEED (as he decided)

Wait til marriage

In terms of serious savings. I guess it's slightly subjective. I'm going to assume when you buy, you'll still be saving to some degree, for retirement, for savings, etc. So you're saving that + the difference in mortgage at the very least. Hopefully saving the tax money you would spend on a home.

If you take the difference between rent and mortgage and other housing costs, you should probably be saving 1000-1500 at the very least per month? Hopefully more, if you're looking to buy alone, since the boyfriend could "hopefully" contribute large amounts later on, most likely nearly his entire salary as well.

Say you're saving $1500/month now and paying rent, if you bring in a guys salary and he isn't paying rent, and you're living together and now saving say his $1500 + $1000 he would normally spend on rent, then you're looking at 4000/month? 3 years at that rate could add some pretty good money. Assuming you invest it a bit, you're looking at close to 150K in three years. That is fairly large chunk to take off a mortgage. If you go 4 years, that could be an additional 200K. Those could be fairly aggressive numbers.

There are some caveats here, which require diligence. This could be like trying to diet in a candy store. While in theory, your diet plans might be fool proof, there might be a small drag here, that others aren't feeling.

You're going to be putting away large sums of money. At some point, you might say it wouldn't hurt to indulge a little bit, save like $300-500 less per month. You could get used to that, and when the mortgage payment comes along, not be able to drop those small indulgences until they've done some fair damage to your overall financial situation.

In the future you might use your boyfriends income to buy a house as well (doubling up what you could buy), which might create an over extending situation? Having a whole income on the side for living might be nice.

If you buy now, and your break it off with your boyfriend, you could put yourself into a potentially bad situation if you buy now? His small contributions around the house could be more important that you expect. If you're going to start all over in the 3 year cycle.

If you're serious about this guy and planning on getting married, you're at least buying "with him" which is a positive. If you setup a solid savings plan and can't keep to it, it would be nice to learn that now, or learn now how to set more realistic expectations.

Overall, I would wait and save.

It's hard to say because I have no idea where you are talking about. If I were single here in the East Bay, on my salary (above average but not 6 figures...), in a very secure job, with a down payment... I would probably be looking for a really small 2 bedroom condo, flat or apartment where my payments were the same or less than rent, and I was walking distance to a BART station, somewhere between MacArthur and Pleasant Hill BART stations.

I would continue to rent until then (maybe forever?). IMO buying a house with the goal of children in your situation is a bit strange. I would be looking for the perfect single-persons starter place that would be easy to sell.

@tude
Remember you need to pay upto 12% when you buy and sell, plus mortgage costs. With this market, we're unlikely to see large gains, which means you could need to sit in it for a long time to just recover those costs.

Doing so for 3-4 years isn't going to work. If you want to keep it as a rental forever, it might be a decent idea. Of course then you need to buy as if it was a rental. Buying a nice place doesn't make great sense. It seems that most landlords buy the worst properties on a block and rent them. If you're in a condo, they might not allow renting either.

@pkennedy
I would never buy anything that I could not rent out to someone else if I wanted or needed to. Where do you get 12% Sellers pay commissions on real estate transactions, buyers do not. If anyone wanted me to pay commissions as a buyer I would also walk.

I am just saying what I would do as a single woman in the Bay Area making enough to pay a crapload in taxes, but not a lot of money. As you can see from my post, I would buy a smaller place in the best area for what I was paying for rent, or not buy at all. A 2 bedroom would be plenty of space to have a first child (if I wanted a child, and thought husband/child would be down the road) or would allow a roommate (easy to get being in a nice area walking distance to BART).

I would NOT, under any circumstances, buy a 3/2 house in a less desirable area..

It's hilarious to see asians giving advice to a jewish born in Russia gal whose actions are solely dictated by her parents born in Soviet times, i.e. the only goal in life is to own a RE. :)

@tude

You might not pay 12% but many others might end up paying it. You'll need to pay it to buy and then to sell. So probably 6% ish. Either way you're "paying" it, whether you pay it or the other person pays it, it's coming out of your bottom line. You might get a good discount, but in then end you're likely going to lose/pay 6% minimum.

The best rental returns are having the worst place in the neighborhood. So if you're buying a great place in a great neighborhood, you're less likely to see a good return on it when you rent it out. If you're not seeing a good return, you're just one of those LL's that is over paying, so us renters can get a nice place at your expense.

True enough, the difference is whether you want to "pay" for the better housing and live in a better home overall. Probably on an investment, you don't want to do that. If it effects you personally, you might though.

How about a conforming (4 or fewer units) multiplex. It gets you into the game (which you seem eager to do), and you come out ahead on all fronts. You can always move out (into a SFH) if and when the time is right.

alexn74 says

It’s hilarious to see asians giving advice to a jewish born in Russia gal whose actions are solely dictated by her parents born in Soviet times, i.e. the only goal in life is to own a RE.

On one hand you are right "parents are overbearing", but I must say, when it comes to money decisions they are really smart themselves, so far agree that buying now may not be the best approach.
Needless to say - mother is an mortgage underwriter.... just not in CA.

pkennedy,
thank you for putting the time to give an answer. I truly do appreciate it.
So as far as savings - you are right on the ball. My projects are exactly that 100K in 3.5years myself. Actually this has been what I've done over past few years. And that not including 401.K at maximum, ESPP, IRA yearly, BONDS, and interest income, and purchasing a luxury brand new car (may not be the best idea, but that was my present for the hard efforts, and payback for someone totalling my 1st corolla, which was also paid off in full in 2 years)...
Not to brag, I don't believe I am stingy, but I do pretty well with savings and such.
As far as his income that is exactly it! He is not able to pull together savings, due to a large debt which he encountered through the market crush. For the next 10 years, his paycheck is all 'spent'. Hence we both felt that he would not be participating more than paying a rent. Do I care for the guy? Yes I do. Do I care he is in such situation? yes I do. Will I put myself at risk due to his debt - NO. Hence no marriage until debt is settled. Kids that's a different story, though I hate the idea of doing it that way, I may have to, as I am not getting any younger.

So back to original discussion.
On one hand it is great to take a chunk off the mortgage. Why waste money on interest (and it is significant sum). Yet, in market like today, I am not sure that' would be my best benefit.
Morally, I would still owe per contact, hence if I put lets say 60% in. I can afford the monthly payment, but if prices decline, bank got the pay, and I missed out. Morally that's the way to go, in my opinion!
Now if I put 20% down (which I am able to do already, leaving just as much in the bank), if prices fall, bank would work (may be, hardly doubt but at least a chance) to help me. But I keep the hundreds of thousands that I made, allowing me to start a new.

But all in all I see a picture. I shall wait and see, but be in touch with the market. Consider a townhome in an area with good elementary/middle (for resale), where my payment would be similar or only slightly above of what I am paying in rent today.( BTW 3/2 is easier to resell than a 2/2 or 2/1. But if prices rise again, it won't matter as much in CALI.)

CBETA says

Now if I put 20% down (which I am able to do already, leaving just as much in the bank), if prices fall, bank would work (may be, hardly doubt but at least a chance) to help me. But I keep the hundreds of thousands that I made, allowing me to start a new.

Quoting myself. Do we really think ALL people foreclosing due to lack of money to pay. They are about 30% of them who could pay, but chooses to save now, rather than waste. They tell themselves "forget about credit", now I need to get ready to live w/o it.
I will say this I like credit, but too many here have forgotten that it is not a free money. It is something that must be repaid! Somewhere deep down, I am glad, even for these people, perhaps dealing with hard cash will teach them back that credit is NOT money. That when spending you need to have a very secure resource for repaying (moral part)
When I purchase something with credit (RE would have to be an exception), I always have this same amount in cash, plus enough to last me 1 year (though they recommend at least 6mo)
Per my mother who is underwriter, she says when giving loans she always looked for people to have steady income prior to, and proof that they will most likely continue to receive it, made sure that new debt plus all debts were only at 33% income (we are dealing with smaller states, where salaries are usually under 50K), 6mo minimum to cover this expense plus all other monthly expenses based on past 12 mo of statements, and good credit standing. She held and still has the lowest 'defaulted loans' rating, which shows how many loans out of all she underwrote went to default.
That tells me she did something right.
Particularly she is shocked by California's market. BTW I tried getting approved through her bank, they said "No way, too Risky in Cali"

CBETA, first of all, understand we are in a bubble.

It took 15 years under a far better economic climate for prices to double in prior decades, 1980 to 1995. Since 1997 to 2006 prices tripled. Incomes nor inflation have kept up with prices.

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

You have plenty of time to focus on your career goals and watch the markets here. Prices are not going back to peak years. As you indicated prices are still well above 3x normal salaries for you and many others. So kick back have a brewski and watch the surfers at Steamers lane in santa cruz Saturday morning.. who knows you might get lucky!

CBETA says

Per my mother who is underwriter, she says when giving loans she always looked for people to have steady income prior to, and proof that they will most likely continue to receive it, made sure that new debt plus all debts were only at 33% income (we are dealing with smaller states, where salaries are usually under 50K), 6mo minimum to cover this expense plus all other monthly expenses based on past 12 mo of statements, and good credit standing. She held and still has the lowest ‘defaulted loans’ rating, which shows how many loans out of all she underwrote went to default.
That tells me she did something right.

Ditto! we seemed to have lost that Good Credit Standards (ie Common Sense) over the past few years.. but it is slowly being put back into practice. Not yet there, but it will take some time. Look for further tighting of credit standards to continue.

I think it's a good decision to buy. I have a friend who's wife did the same as you. She bought a house in Santa Clara while she was single and when they got married they moved to a bigger place and kept her house as a rental. This was back in the 90's during the last real estate bust now they've got about 4 houses and are pretty much set.

yes you are saving money renting but that money you saved gets wiped out if prices go up. Real estate market is cyclical so prices will go down but they will also go up. Better to have an asset so that you're at least in the game even if it's in a so so area.

Prices won't outswing her savings right now. Probably not for a little while. I was told once by a financial banker, when we were discussing personal stock choices, that buying a company coming out of bankruptcy is a pretty good investment, BUT wait until it's come out fully. There could be huge gains to be made, but it could also all go away. You'll still see great gains once it gets out. Essentially don't try and time the bottom, don't catch a falling knife, etc.

This market might be at bottom, many of us think it's pretty close already, if not recovering already. However, it can't hurt to wait another year to see what shakes out, at the very least. If it is going up, you miss the very bottom, if it's not there, you can wait another year or two. Better to catch it on the way up, and solidly up.

As for "10 years of paying off debt" Um. Bankruptcy an option here? Don't most people suggest it if you're over 5 years of paying back a debt at a large portion of take home? If you're not going to use his credit, trash it. 10 years is a VERY long time.

This thing is confusing.

CBETA, some questions for you.

Is this home a primary resident you want to stay in for long years, or is it possible investment you may sell in few years?

Did you talk about buying home with your guy, and what was his opinion?

pkennedy I'm not sure if that's the way I would play the housing market. It's a bit different from stocks in that solidly on the way up could mean it's harder to get the house you want.

Although waiting is certainly least risky since you're guaranteed not to win or lose by not playing.

I have no hesitation saying that now is the time to buy. Of course it depends on what you're buying but at the entry level you are mostly in the clear from any major price declines.
The issue in CBETA's case is the boyfriend situation. I say dump the boyfriend. I'm sure he's a nice person but marrying someone with 10 years bad credit is just a recipe for disaster.

pkennedy says

As for “10 years of paying off debt” Um. Bankruptcy an option here? Don’t most people suggest it if you’re over 5 years of paying back a debt at a large portion of take home? If you’re not going to use his credit, trash it. 10 years is a VERY long time.

well yeah, an option, but there is something to be said about honor. Acquired debt happened because he made a dumb move, but thankfully he was saved. He feels gracious and wants to repay for the effort.

seaside,
I would not plan to sell the house I purchase, for no good reason.
Yes, if I can no longer afford it, I will sell. Otherwise, I'd like to live there. Unless of course I am able to upgrade and/or keep it as investment and live in a better one.