patrick.net

That depends how much of your savings and assets you're willing to pile in. You can probably get a loan up to $250k with little down.

Good job with the savings. That's pretty impressive.

Hi klarek,

Thanks for the info re: my potential pre-approval, etc.

You've probably heard this before. I wanted to buy around the turn of the century, then prices zoomed up. I became very suspicious of it all, esp of realtors saying i'd get priced out of the market if I didn't get on board. I just kept saving little by little, and I told them the climb in real estate prices was unsustainable, and turns out I was right.

My instinct, since I've waited this long, is to wait a little longer. But it's hard because I'm not getting any younger, and my rental situation is sort of bad. But when I see price reductions in the amount of a year's worth of rent every day or two in my area, I guess I can hold on a while longer.

Sean

You say it's a rural area, but not all rural areas are created equally. There is rural and then there is rural. Is it in a crap hole like central valley Mendota or Hanford, or Weed, Calif. or in upscale rural areas like Half Moon Bay or Sebastopol or Healdsburg? For 485K in a "rural" area it must be the largest house in the county if it's in the low end rural areas and that's about right for a home in a nice rural area. Jobs is the key to whether or not it's a good deal. Add up all of your expenses (mortgage/taxes/maintenance/insurance) plus a maxed out IRA and 401K/403B, SEP or whatever retirement vehicle you contribute to along with saving 15% for an extra cushion and whatever is left over is close to what you can afford. Stay away from PMI. Put down the amount to keep you out of throwing that PMI money away.

lurking says

You say it’s a rural area, but not all rural areas are created equally. There is rural and then there is rural. Is it in a crap hole like central valley Mendota or Hanford, or Weed, Calif. or in upscale rural areas like Half Moon Bay or Sebastopol or Healdsburg? For 485K in a “rural” area it must be the largest house in the county if it’s in the low end rural areas and that’s about right for a home in a nice rural area. Jobs is the key to whether or not it’s a good deal. Add up all of your expenses (mortgage/taxes/maintenance/insurance) plus a maxed out IRA and 401K/403B, SEP or whatever retirement vehicle you contribute to along with saving 15% for an extra cushion and whatever is left over is close to what you can afford.

Think tourist town with LA/Orange County tourist money. Eastern Sierra, Mammoth Lakes, for example. Jobs are "iffy". Mine seems secure, but I definitely have had to cut biz expenses to keep my bottom line intact.

The $485k house is now $279k. The high-end homes are in the $700k+ range, and none are selling. The only homes really selling are the ones to the banks, or the real cheap ones (under $200k, but they are hideous shacks). The sweet spot, if I can afford it, are the ones coming down from $500k to around $300k. At least that's what it seems at the moment.

Thanks for the advice, it really helps me and is appreciated.

Sean

Sean7593 says

You’ve probably heard this before. I wanted to buy around the turn of the century, then prices zoomed up.

I heard it before. Unfortunately not enough people had the sense and patience to hold back.

I became very suspicious of it all, esp of realtors saying i’d get priced out of the market if I didn’t get on board. I just kept saving little by little, and I told them the climb in real estate prices was unsustainable, and turns out I was right.

realtors are scumbags and liars. This is now a matter of fact, but back then any casual observer might have credited them with being right.

Sean7593 says

My instinct, since I’ve waited this long, is to wait a little longer. But it’s hard because I’m not getting any younger, and my rental situation is sort of bad. But when I see price reductions in the amount of a year’s worth of rent every day or two in my area, I guess I can hold on a while longer.

If you're still not comfortable buying, then don't. Prices could still fall a decent amount. Find a place to rent month-to-month. I've been doing it for over three years. Don't jump in before you're ready. You'll end up lying to yourself and making up bullshit reasons that it was a good idea to buy. Lying to yourself is a cardinal sin. Your instincts have been right, so continue to trust them.

The realtors around here say we (being rural) are insulated from the general real estate market, which has proven to be an oily lie.

I would think, since there are a lot of second homeowners from LA/Orange County here, that our market is directly related to the LA/Orange County market. And here is a blurb about THAT market from dqnews:

"“As an indicator of upcoming trends, the month of March is actually pretty reliable. We got off to a slow start with sales this year and it doesn’t look like that will change anytime soon. Two of the likely game changers in the short run would be a surge in job creation or another round of price corrections,” said John Walsh, DataQuick president."

http://www.dqnews.com/Articles/2011/News/California/Southern-CA/RRSCA110413.aspx

So, it doesn't look good for us, if my "analysis" is correct.

klarek says

If you’re still not comfortable buying, then don’t. Prices could still fall a decent amount. Find a place to rent month-to-month. I’ve been doing it for over three years. Don’t jump in before you’re ready. You’ll end up lying to yourself and making up bullshit reasons that it was a good idea to buy. Lying to yourself is a cardinal sin. Your instincts have been right, so continue to trust them.

Many thanks, klarkek. I will do just that!

I think you should definitely buy. Life is about living and it sounds like you are not enjoying life and haven't been for maybe the last 10 years? Get out of that rental and go after a house of your own before you duy a withered up old man with a million in the bank. You could almost afford to buy the house cash if you took a large hit on your retirment account (401k?). I would set aside a nice chunk (maybe $20K) for emergencies and throw down the rest of your cash to lower your monthly payment. You could get close to buying a house for less than what your rent is with an $80K down payment. If you wanted it substantially lower, you could dip into the retirement account and take the hit on taxes and penalties.

You can obviously afford $1300 a month so look at mortgage calculators to see how much of a lower payment your different down payments will achieve with different starting prices. If you think you can afford more, try the calculator till you find out what works for you price wise. I myself put $20K down on a $165K house to bring my payment way down. I preferred an easily affordable payment now over leaving that money in my 401K where it looks nice but does me no good till I retire. I prefer a lower payment verses lower risk but it's your money and I am stable in my job.

I chose to live further out from work, about 20 miles but it's all freeway driving. I bought a nice house in July of last year that needs work but comparable houses within 5 miles of work were in worse neighborhoods and were $40K more in cost. I do wish I lived closer to work due to fuel costs and traffic but not at the expense that the higher house cost and higher crime rate that come with it. I haven't regretted buying my house here yet.

Throw an offer out on that dream home of yours. Maybe a lowball to start out with to get a feel for the game. I would definitely check it out to make absolutely sure it's what you want but you obviously are ready to buy, well prepared, and are just waiting for.................???? You tell me.

Fireballsocal says

I think you should definitely buy. Life is about living and it sounds like you are not enjoying life and haven’t been for maybe the last 10 years?

WTF? Did he say he didn't enjoy life? And when did the cure for unhappiness become a home purchase? Not even dumbass realtor commercials would go that far, and they really push the brink of why one should buy.

This is why people don't trust the "buy now" crowd. When they can only offer invalid reasons based on non-existent premises, you have to wonder if the whole thing isn't one big fucking ponzi scheme ripoff.

250K saving with 60000/yr income... that's impressive. Kudos for that.
BTW, it's gross income, right?

I do think Fireballsocal made right move, because his situation back then seeing from his old thread makes sense to me too. The question is, does yours too?

Here's a thought. You may not able to get a loan as much as you think you can since you're a small business owner. I guess you may get 150K loan. Bit less bit more. Assuming your downpayment would be 50K or so, that'll get you approx 200K~220K available for home purchase. You have to think about all those costs you may need to spend on house after you buy one. I do not recommend you touch your retirement account unless doing it is absolutely worth the hassle. And I do recommend you set chunky money aside, because you will never know what's gonna happen. That's why I am giving you conservative numbers. So, my take is this. Go for it if you find something you like under, let say, 220K, otherwise, you may wait little longer.

Probably not a bad time to buy. If you wait another 2 years and prices go down another 10% from where they are today, you will have spent another $30K on rent, right?

No rush though. It's clearly a buyers market, and prices and interest rates are not about zoom up any time soon. Sounds like you're already looking. If you keep doing that you'll know your local market well after a while, and be comfortable pouncing when you're ready.

klarek says

Fireballsocal says

I think you should definitely buy. Life is about living and it sounds like you are not enjoying life and haven’t been for maybe the last 10 years?

WTF? Did he say he didn’t enjoy life? And when did the cure for unhappiness become a home purchase? Not even dumbass realtor commercials would go that far, and they really push the brink of why one should buy.
This is why people don’t trust the “buy now” crowd. When they can only offer invalid reasons based on non-existent premises, you have to wonder if the whole thing isn’t one big fucking ponzi scheme ripoff.

Was waiting for responses like that klarek. Reading this site gave me alot of insite and I was able to wait out the majority of the downfall before buying. It seems like some folks on this site will never feel it's the time to buy though. I speak from the experience of a home buyer though and am very happy I bought when I did.

By the way, read the entire origional post before calling me out next time will ya?

"want a place to live at this point because my rental is terrible, and my life is very bad because of it (friends do not want to come over to visit, etc.)."

houses are not assests. rent and be free. go travel. make the world your home. quit your job. go live in India like a king. learn yoga. why be a debt slave? you've made it this far. why give in now?

Katy Perry says

houses are not assests. rent and be free. go travel. make the world your home. quit your job. go live in India like a king. learn yoga. why be a debt slave? you’ve made it this far. why give in now?

I would like to quit my job and start an aquaponics Tilapia farm in my back yard. But I can't as a renter.

edit: just kidding about quitting my job. I would still work, but with the idea of becoming more self-sufficient in the future.

Sean

seaside says

Here’s a thought. You may not able to get a loan as much as you think you can since you’re a small business owner. I guess you may get 150K loan. Bit less bit more. Assuming your downpayment would be 50K or so, that’ll get you approx 200K~220K available for home purchase. You have to think about all those costs you may need to spend on house after you buy one. I do not recommend you touch your retirement account unless doing it is absolutely worth the hassle. And I do recommend you set chunky money aside, because you will never know what’s gonna happen. That’s why I am giving you conservative numbers. So, my take is this. Go for it if you find something you like under, let say, 220K, otherwise, you may wait little longer.

Yep, as a self-employed person, I suspect they will be harder on me. I read that I would have to give the IRS a release on my tax forms so that they could send them directly to the lender. They won't trust my own copies!

I agree on being conservative--feels right to me, at least. I guess I should at least try to find a few mortgage brokers to find out what I can qualify for. Or should I just go to my local bank where I've had an account at for 17 years to see what they will "offer"? I probably will go with a combination and pick the best deal, if I can figure out what that is.

Thanks!

Sean

Fireballsocal says

I think you should definitely buy.

Definitely maybe!

I appreciate your point of view. Helps me a lot. I will probably keep renting till I feel more comfortable, but then it may be too late.

Probably not, though.

Thanks again,

Sean

Fireballsocal says

By the way, read the entire origional post before calling me out next time will ya?

“want a place to live at this point because my rental is terrible, and my life is very bad because of it (friends do not want to come over to visit, etc.).”

Yeah, it's partly a quality of life issue. But I have to balance it with the cold hard facts of what I can afford, comfortably. And "comfortably" is VERY subjective for me.

Best,

Sean

Sean7593 says

Fireballsocal says

I think you should definitely buy.

Definitely maybe!
I appreciate your point of view. Helps me a lot. I will probably keep renting till I feel more comfortable, but then it may be too late.
Probably not, though.
Thanks again,
Sean

I don't think you have anything to worry about for a few years yet, aside from qualifying for a loan. I'm pretty sure the market isn't gonna jump back up any time soon. With your assets, you may have to pt down more than the 3.5% advertised but you will find a lender with no problems. I would try a broker, your bank, a local credit union, etc. but make sure you do them all close to the same time as the inquiries appear on your credit score.

I should have given a caveat above. If I was in your shoes with what little info you had given in the origional post, I would definitely buy. Best of luck in whichever direction you decide to head.

Fireballsocal says

I don’t think you have anything to worry about for a few years yet, aside from qualifying for a loan. I’m pretty sure the market isn’t gonna jump back up any time soon. With your assets, you may have to pt down more than the 3.5% advertised but you will find a lender with no problems. I would try a broker, your bank, a local credit union, etc. but make sure you do them all close to the same time as the inquiries appear on your credit score.

I should have given a caveat above. If I was in your shoes with what little info you had given in the origional post, I would definitely buy. Best of luck in whichever direction you decide to head.

Thanks, Fireballsocal!

I think at this stage I need to get some quotes from a few different lenders so I can get a sense of what I'd qualify for. I have a book that says you should pull your own credit score and make them use that before commiting. Otherwise (if they each pull it separately), it could hurt your credit score.

I'm at the point where I am definitely interested in buying. But after 10+ years of shying away, I feel a bit awkward. I know I will be getting ripped off by the lenders, no matter what I do, and want to minimize that.

But it's a necessary evil, so I will go to the bank I've been with (in my business) to see what they can offer. I'm wondering how I can get other banks to compete. I would think I could get a better deal if I ask around. But I feel a bit lost as to how I can get competing offers with regards to a mortgage.

Sean

Ok Then rent somewhere else or lease and start your "farm." not every business owns the building or land. $250k cash in this market invested correctly could start a nice business IMHO. Remember the house really owns you.

Katy Perry says

Ok Then rent somewhere else or lease and start your “farm.” not every business owns the building or land. $250k cash in this market invested correctly could start a nice business IMHO. Remember the house really owns you.

Only $100,000 is liquid. The rest is tied up in a SIMPLE IRA. I could use, at most, 10 percent of that IRA money for a down payment.

Also, I am in the country, not in Beverly Hills.

Best regards,

Sean

why dont you buy a cheaper house and not go into as much debt. Rural California surely you can find a house for 100k

The house might be an ugly duckling but over time you can make it better.

put something like 50k down and a 50k mortgage so you're paying less than you pay now in rent.

Come on guys. in my mind this can't be an Economics only question and if it is,I have in my opinion a WAY better use of the down. But I don't think it should be. He is single, Your wife to be will almost certainly want to PICK out a home together or she will never feel as if she any input, and she will / could always wonder what other women, and on and on. NOT to mention all the other changes to come at your age. You did ask, so might as well hear all kinds of IDEAS odd be they (this one) or not.

Why not if you think your home if going to be a GOOD investment, *(I sure do not think so) when compared to any number of aggressive stocks that are solid wait for a BIG Correction that is surly due by 2013 or much much sooner. Drop your down stroke in to a few well thought out stocks and EARN enough to BUY and PAY Cash for a home in 3-5 years, I mean look back to March 9th you could have bought any number of solid stocks (CAT, GOOG, APPL, and the list goes on) that would have turned 100,000 cash into 400,000 for example, Now chances are only so so that we get to back to DOW 7000 but some rather (Harry Dent) seem to think we will, and he is NOT alone, and in fact in GOOD COMPANY.

that's pretty bad advice gambling in the stock market. sure dow could go to 7k it could also go to 3k what do you do then?

he should buy a house. get rid of that 1300 rent expense. Even if it's just a rental house he's got enough cash to buy a house cash and rent it out for $1k per month.

Don't be tempted to take your retirement funds and buy a house with them. You should use just your liquid bank account for this.
Not knowing how nice the house is, or other factors, I would consider either 1. wait and save up more cash 2. seek a more modest house.
The more secure you think your business cash flow is, the more you can think about the debt of buying.
In a pinch, sometimes you can have a housemate who pays rent, this is an option that can come in handy.
Eventually you can get your money out of the house by reverse mortgage, if you have no heirs to give it to.

Sean7593 says

Katy Perry says

Ok Then rent somewhere else or lease and start your “farm.” not every business owns the building or land. $250k cash in this market invested correctly could start a nice business IMHO. Remember the house really owns you.

Only $100,000 is liquid. The rest is tied up in a SIMPLE IRA. I could use, at most, 10 percent of that IRA money for a down payment.
Also, I am in the country, not in Beverly Hills.
Best regards,
Sean

I'm actually guy in Murrieta CA. And I'm guessing you're some where near Sacto off the 80?
3/2 in Yuba city going for $120k.

Paying Cash = Winning

Eastern Sierra, Katy. Median price ~300k, but falling...

Sean

Beautiful area. I have camped from owens dry lake to June lake loop. Trying to get to cerro gordo if possible this year.

"I would like to quit my job and start an aquaponics Tilapia farm in my back yard. But I can’t as a renter."

You could if you left California where that much money buys you a house with plenty left afterwards.

Advise per your request:
(1) Absolutely do not touch your retirement account. Period.
(2) Since you have the funds to avoid PMI, I would recommend 20% minimum downpayment. As we are now seeing, PMI does not seem to do what it is intended to do, which is insure the mortgage in case of a default. Lenders and PMI companies are coming after the defaulting borrower for cash contributions.
(3) You are single. Do you expect to stay single long enough to recoup your selling costs if a new partner does not want to or can't live where you plan to buy?
(4) At almost 40 years old, what has been your habit for length of time in a home? Do you expect to continue that pattern?
(5) If the area you are interested in buying is likely easy resale, and everything else is a "go", then buy. If not, consider another location or wait.

It depends on TWO things.

1) How do you park your savings? In stocks? commodities? precious metals? bond? Foreign currencies? If the best you can do is to park your savings in USD bonds or USD cash, absolutely buy, because your USD is about to become trash. I have preached this since I started visiting this site, and my anti-USD investment throughout the years has worked out beautifully for me.

If you feel comfortable doing active investment, which you don't seem to be because you mentioned simple IRA, you should buy a house, at least you will get enjoyment.

2) Do you plan to marry and have kids at some point? If so, you may want to hold off buying a bit later because the wife will want her input, as someone mentioned above. She may not like where you live, and she may not like your taste, and where you buy may not have a good enough school district for her. In this kind of economy, if you have $250K savings to show for your income, you will do very well on dating sites.

I've been in this rental for 10 years, so I don't move often. The landlord won't do anything but the most minimal of maintenance, so the place is now in bad shape. There are plenty of other rentals hitting the markets, mostly homes that are not selling, so that is an option.

No plans to marry, and not concerned about a future partner not liking a house I buy. My savings are all in cash at the moment, which is depressing. Yes, the dollar has weakened and that may continue. However, deflation in things like housing is in my favor.

Several of the homes are HomePath properties (Fannie Mae owned). FM financing is available with 3.5% down. They also have an incentive through the end of June (must close by then) to pay 3% of the closing costs.

I may see what I can get pre-approved for, and start that process next week. It'll give me a sense of what I can currently buy, though I may very well wait till winter to buy.

Thanks for the many great posts. They've been very helpful!

If you are thinking of getting a loan, dont think of it as a tax haven though. For one thing you are paying interest to someone which is your money going away. And you get a very insignificant tax benefit if any. My folks who have a mortgage for many years now have not had a single year where they claimed interest rate on the mortgage, since standard deduction was better by a mile.

You are making only 60k a year so you might get no tax benefit from having a loan.

Don't spend more than what you are personally comfortable with. Consider that repairs and maintenance and property taxes will become a burden at some point.

Also you are not married yet, so you should consider that as potential conflict later in life if you are stuck to a specific location.

How much you can afford will depend of course on the situation of where you live and your income/work.

For the most part, we Cool and Hip Bay Area Yuppie Scum aren't familiar with a rural situation, like you are with your first hand experience.

Since you asked for advice though,

"I would not assume anything about fuel costs."

Transportation fuel might be in the future anywhere from 50 cents per gasoline gallon equivalent to 50 dollars. Who's to know?

Sean,

Best of luck!

Nice work on that savings. Just make sure negative equity does not apply to the property/locality you are buying. Good luck.

I think you should find the best rental in the area for you. Then Move.

Keep doing what is obviously working for you.

Houses are liabilitys now. stay flexable. keep stacking cash.

does anyone else hear that sucking sound?

remember,.zero is more than any negitive number I can think of.

Especially since you say prices are continuing to fall, I would keep renting for the short term in the place you live. Renting a nicer place is another option, but the pain and expense of moving would have to outweigh the pain of continuing to live in the place you are in. If prices were down from the highs but not continuing to fall so much (?), then I would seriously consider buying. All of the talk about "houses are a money pit", "houses are not an investment", etc. has to be taken with consideration to the price -- absolutes are rarely true all the time.

If you have done the math, and feel confident about your job, the price and the long term health of your community, I think buying could be a fine idea. If you have spent any time on this forum, you know all of the potential downsides, so as long as you keep those in mind (and don't lie to yourself), you are probably going to make a reasonably good decision.

I would personally opt for the minimum down payment that you can avoid PMI with, keeping the cash in reserve for unforeseen situations. I may consider a big down payment if I could secure a shorter term (and lower interest rate!) loan. Interest rates are low, and are likely going up in the mid term (and it's reasonable to expect investment yields to go up, too). If that happens, you will be glad to have the cash sitting around so you can invest it, and if not you can always make additional payments on your mortgage (reducing the payoff date, but not lowering the monthly payment for fixed rate loans)

If you talk yourself out of home ownership, then I think the idea of getting a nicer (long term) rental and spending your savings on travel (or whatever) is a fantastic idea -- if that's what you want. There is definitely a mathematical side to the decision, no doubt, but it is very dependent on personal considerations as well. Some people used the personal "want" side of the equation to rationalize unjustifiably horrible mathematical decisions -- try not to do that. Others have used borderline mathematical cases to talk them out of the personal enjoyment side of the equation -- probably a good idea to avoid that too. Just my opinion.

swebb says

If you talk yourself out of home ownership, then I think the idea of getting a nicer (long term) rental and spending your savings on travel (or whatever) is a fantastic idea — if that’s what you want. There is definitely a mathematical side to the decision, no doubt, but it is very dependent on personal considerations as well. Some people used the personal “want” side of the equation to rationalize unjustifiably horrible mathematical decisions — try not to do that. Others have used borderline mathematical cases to talk them out of the personal enjoyment side of the equation — probably a good idea to avoid that too. Just my opinion.

well said. :-) middle path is always the best.

"I think I can afford the place"

Red Flag!

Talk to a good accountant. He'll set you straight on what you can afford.

Remember its more than the payment. there are also taxes, maintenance, etc.

On the surface $200k seems realistic. $300k might be stretching a bit, IMHO.