patrick.net

Well if prices of housing keep dropping and your goal is to own a home. How are you losing money? You're gaining with every dollar saved if you want to buy with cash.

Have you done a spreadsheet with all of your monthly expenses (mortgage, daycare?, maintenance, utilities, etc.)? Just from a quick glance, that seems like an expensive home for your salary.

If you will live in area for 20 years, a short term decline in values should not be an issue.

You have to decide if you want to try to forecast the bottoming of the market.

There is no rent control in Marin , right? so, this could be a factor in favor of buying, to protect against a possible bull market in rents, which are increasing.

Make sure you have adequate health, life and disability income insurance, thru work or privately.

Sounds like you are in a great situation, financially. Loan wise.

Mill Valley. Corte Madera and Larkspur are awesome areas.

Worth noting that you might consider starting out with more of a starter home in lower cost area, such as Fairfax, or San Rafael, or even Novato, building up equity, to protect against later being priced out of market.

I know a few of the top producers at McGuire if you need a referral to a real experienced pro

it would be very difficult for anyone to give you advice without knowing your tolerance for risk. it's risk that will determine the type of return you should expect.

what do you want to earn? what do you need to earn? why do you want to earn it? how much are you willing to lose? how important is each goal?

answer those questions and someone may be able to give you a few ideas on where to look and what to expect.

Taking on any risk requires lots of effort on your part. I'm annoyed beyond belief that the large pot of money I've retired on earns me almost nothing these days. I've put a good chunk of money into the "JNK" fund, which is a junk bond index ETF. It pays 8.29% interest (sure beats CD rates!), but it still is a JUNK bond fund. Every day I have to check several times to see if it's going down - and be ready to put in a sell order. Perhaps you could put in a "stop loss" sell order, but at what value? I've spent the last week or so worrying about if and when I should bail on this investment. That's a lot of time and effort just to put into an investment fund.

merlino says

Don’t ge me WRONG we are currently in no rush to buy and we will not get pressured by real estate agents but how do we know when it will be time to buy.

I don't really understand the question in this context. If you are willing to pay more to buy than to rent, then why wouldn't you buy now if you find something you want within your budget? The 10% down/3% interest is gravy on top of that (assuming it's fixed) that may make it cheaper to buy than rent, per people's calculations above (although I haven't checked their accuracy).

If your PITI is $4210 per the calculation above, then you are paying almost 34% of your gross income toward housing. The maximum under traditional lending is 28%, so this is quite high.

The way you can fix this is to put more than 10% down, but that means there is a higher opportunity cost and more of your money is at risk, and you have a less of a cushion in savings.

The other question is what are you doing with the money now? If you're just putting it in a savings account, then it's not really earning much, so your personal opportunity cost is low. Have you planned all along to use this $250K for housing, or have you planned to use it for something else (part-housing, part-investment)?

Other people have mentioned other important factors -- your risk tolerance, among other things.

If you want to live there for 20+ years, are you concerned if the price drops in the next 5 years by 20% (just for example)? Some people are and some people aren't. Are there any life circumstances that could cause you to sell? (loss of job, have another kid, etc.)

Taking on any risk requires lots of effort on your part. I’m annoyed beyond belief that the large pot of money I’ve retired on earns me almost nothing these days. I’ve put a good chunk of money into the “JNK” fund, which is a junk bond index ETF. It pays 8.29% interest (sure beats CD rates!), but it still is a JUNK bond fund. Every day I have to check several times to see if it’s going down - and be ready to put in a sell order. Perhaps you could put in a “stop loss” sell order, but at what value? I’ve spent the last week or so worrying about if and when I should bail on this investment. That’s a lot of time and effort just to put into an investment fund.

Worst case would be if the fund declined, like it did in 2008, AND, you panicked and sold. A serious double dip could cause this. That might actually be a time to invest, depending on the yield and quality ratings. I heard that Bill gross of PIMCO is very interested in the toxic asset investment program. Just google on this, and there is a video or two.

My understanding is that this type of investment CAN be a good one, as long as the bond managers really know what they are doing. And, if you can withstand the volatility over the years.

For me, unease about this, and lost sleep, means that you might easily have too much in this particular type of investment. The stress IS a cost, in my opinion.

Have you considered alternatives from quality sponsors, such as REIT's, Utilities, First Mortgages, etc? Also, is it possible for you to target good dividend yielding Blue Chip stocks? Anything not regulated well, and anything like a limited partnership, you should probably avoid. Another idea is to have SOME money in an Immediate income Annuity, to guarantee you income you cannot outlive. Not a simple issue. Depends on age, health, etc. Some have inflation protection, which is another factor that is very important.

Years ago I sold securities, including high yields, but do not any longer.

Relevant video, especially near the end.

Nobody here mentioned portioning even the smallest percentage towards investing in the community or helping others.

(Cool and Hip) Bay-Area Centric blogsite with heavy Silicon Valley representation.

Hardly surprising.

Welcome to Our World.

"Keep saving cash. Find a foreclosure to squat. Hoard cash. Look for land with its own water supply and good visibility and down-slope firing angle when the going gets rough."

haha. that's good stuff. but don't forget, the dollar will be worthless once america resembles MAD MAX - BEYOND THUNDERDOME!

forget dollars- you need to hoard silver, gold and, if america resembles the movie ELI instead, bibles and shampoo!

sybrib says

Nobody here mentioned portioning even the smallest percentage towards investing in the community or helping others.

No offense, but neither did you. I highly recommend that you either don't post here if you don't like people's replies, or that you set a good example in your own replies, rather than spend time criticizing people.

The OP asked a very specific question, and people gave pertinent answers. I'm not sure why that's worthy of criticism.

Lemmee guess, Bay Area, - right?

The very specific answer, invest in some human capital.

sybrib says

Lemmee guess, Bay Area, - right?

The irony is that it's a stereotype of Bay Areans to be smug about things you're talking about, not the things I'm talking about.

Thank you all so much for the great comments. You are all awesome. I do also feel that our combined monthly income may be tight but we are pretty disciplined. I work at UCSF. The loan program was designed to help/attract "young talents" buy their first residence near campus. It is variable rate with a maximum adjustment of 1% per year. So in a way, this is a starter program. The program beats any bank but most decide to change to a fixed rate after a few years.

I still feel insane going for such a purchase right now. I feel I should keep an eye on the areas and wait to see a few signs that the worst is behind us. Off course this could happen slowly over ten years...

BTW I am not from the bay area. Simply a hard working democrat from the middle of nowhere.

Have a nice day.

E-man says

$150k combined salary, that’s really pushing it.

This. But then he has a very secure job.

merlino says

Thank you all so much for the great comments. You are all awesome. I do also feel that our combined monthly income may be tight but we are pretty disciplined. I work at UCSF. The loan program was designed to help/attract “young talents” buy their first residence near campus. It is variable rate with a maximum adjustment of 1% per year. So in a way, this is a starter program. The program beats any bank but most decide to change to a fixed rate after a few years.
I still feel insane going for such a purchase right now. I feel I should keep an eye on the areas and wait to see a few signs that the worst is behind us. Off course this could happen slowly over ten years…
BTW I am not from the bay area. Simply a hard working democrat from the middle of nowhere.
Have a nice day.
merlino

I think you are INSANE. Holy crap, and 850k house on a 150k COMBINED salary and 2 young kids? That is just like whoa... no wonder the Bay Area is insane, the people that come here are crazy.

We have a 160k combined salary and no kids and no other debt besides a $250/month student loan payment and I hate having a 250k mortgage. I cannot imagine taking on 700k++ of debt with 2 young kids in the house, who is going to actually raise them?

merlino says

Combined salary: 150k now -> 200k in 5-10 years.

I wouldn't go any higher than 500k.

Personally, I'm looking for a house that's only double my current salary, but then again, I don't live in Overpriced Land so that's possible. What happens if there any setbacks involving your employment with a monthly payment that high? You're rolling the dice...

merlino says

With the inflation, we are losing our savings every day.

That's what THEY want you to think
The reality is with the inflation, you are more under paid every day.

That's how inflation/cost of living works. When the two go up, wages goes up. That's why Fuckface Bernake refuses to acknowledge Inflation, let alone the 4 year long recession were in.

150k salary and 850k house... it is about 6 x income!

unless you have a significant downpayment (200-300k) saved up, then it is a stretch.

I see '800k is a starter home' mentality in Bay Area all too often.

I haven't seen this mentioned, but I wouldn't purchase a home using combined income. What happens if one of you gets laid off a week after closing? Than what? With two little ones I'd worry a lot about over taxing the financials...

Also 850 is a lot. You can find decent places with enough space for 600.

I'm really conservative with my financial dealings. My wife and I make a tad more than you do. We "could" afford to buy here if we wanted. The reason we don't is because the purchase would mean we would be counting on BOTH of us being gainfully employed. I've been laid off a total of 2 times since 2004. I don't exactly trust our current dual income for anything. Thus my tendency is to seek a house we could afford on a single income. Meaning probably about 400-450k max, which means usually bottom feeder crap in the Bay Area. Either that or put a large portion of our savings on the down payment which I really don't care to do.

Then again we are not looking and plan to relocate in a few years to somewhere cheaper. So take what I wrote with a grain of salt.

merlino says

It is variable rate with a maximum adjustment of 1% per year. So in a way, this is a starter program. The program beats any bank but most decide to change to a fixed rate after a few years.

It's an ARM? If you're risk averse, I can't believe you would consider that rather than putting 20% down and going conventional with a 4.5% fixed rate...

I second edvard2.

You write: "Combined salary: 150k now -> 200k in 5-10 years." as a sure thing.

How anyone can make such an asumption expecially in our current economy. How can you be sure you'll have it in 5-10 in the same area?

You sure are looking in so called good school districts, but you live in the state that is bankrupt. By buying in today $850k district you risk to end up in a rapidly deteriorating public school district. Are you prepared to send your kids to private schools or to spend about $1000/month per child education on top of what they are going to get from public schools? What about preparing for their higher education later on?

Edvard,
I/We are in the same boat too. Under 500k, you get crappy shacks. Any thing decent goes up from 600k+.
We also like to buy one that a SINGLE income can support (120k/yr). But getting a decent house for that price seems unlikely!

edvard2 says

I’m really conservative with my financial dealings. My wife and I make a tad more than you do. We “could” afford to buy here if we wanted. The reason we don’t is because the purchase would mean we would be counting on BOTH of us being gainfully employed. I’ve been laid off a total of 2 times since 2004. I don’t exactly trust our current dual income for anything. Thus my tendency is to seek a house we could afford on a single income. Meaning probably about 400-450k max, which means usually bottom feeder crap in the Bay Area. Either that or put a large portion of our savings on the down payment which I really don’t care to do.
Then again we are not looking and plan to relocate in a few years to somewhere cheaper. So take what I wrote with a grain of salt.

invest into a business or help the poor. buying a house isn't an investment, its simply just an expense or potentially very expensive luxury if you are going to spend that much.

Otherwise you can simply invest into very conservative portfolio on the stock market. We have a new line of business opening up if you are interested in being a VC...

I have to say though if you plan to spend 800+ on a house, in my opinion, you are spending too much for shelter.

invest into a business or help the poor.

The poster works in the next labor bubble. This is probably the best advice.

Does the poster have tenure? If you're just on the staff at UCSF you're in trouble. California the basket case of the world. As the 7th largest economy, until it determines as oun fiscal future it will continue to drag down the global economy.

jessica says

It’s an ARM? If you’re risk averse, I can’t believe you would consider that rather than putting 20% down and going conventional with a 4.5% fixed rate…

There is such thing as a good ARM. I mentioned one on Patrick.net once before -- the 5/5 ARM from Pentagon Federal:

https://www.penfed.org/productsAndRates/mortgages/mortgageCenter.asp

The current APR listed is about 3.5%. It can only adjust up to 2% points per 5 years, and it can only adjust 5% total. It would take at least 10 years to hit 7.5% and 15 years to hit 8.5%, and 6-9% is not an atypical mortgage rate. If you are like the typical family who moves after 7-10 years, you will never be above 5.5%.

I may be naive but I was told tenure position at UCSF is pretty safe. I say 150k$ combined salary because my wife takes care of the kids at home and we only use daycare twice a week. She plans to get back to her small business in a couple years.

We know that we would be pretty tight in the next few years but assuming that we give a good 200k$ in downpayment, then I think we would be able to survive without work (with some help) for at least 8 months to sell the home.

Again, we are not actively trying to buy. We are looking at what to do with 250k$. It is currently sitting in a CD which is ridicules.

Thanks for the comments.

merlino says

I may be naive but I was told tenure position at UCSF is pretty safe.

I think he was saying that you are fine if tenured, but if not you should worry.

I have the same problem. I want to buy a house but I'm also "chicken." I just don't know when is the right time. At the end of the day you have to go with your gut and live with your decision.

My wife and I are renting right now $1400 a month and are thinking about purchasing a home for $450,000. We are putting $150,000 down and going for a 15 year mortgage at 3.65% 3.81APR We have a combine salary of $180,000. After closing we should have about $30,000 left in our bank accounts. Does it make sense to buy or continue to rent?

JamesDean says

I have the same problem. I want to buy a house but I’m also “chicken.” I just don’t know when is the right time. At the end of the day you have to go with your gut and live with your decision.

My wife and I are renting right now $1400 a month and are thinking about purchasing a home for $450,000. We are putting $150,000 down and going for a 15 year mortgage at 3.65% 3.81APR We have a combine salary of $180,000. After closing we should have about $30,000 left in our bank accounts. Does it make sense to buy or continue to rent?

Everyone is scared when they first buy. It's a big purchase. As long as you don't have any other major expenses, you should not have a problem paying for a house in that price range with that salary. Whether you should buy or not should be entirely based on your personal goals and feelings. Are you going to stay there a long time? Kids/schools? Accepting the responsibility of maintaining a house? Etc. By the way, no one knows when is the right time in terms of which way housing will go. If they had that ability, they wouldn't be on this message board.

My 2 cents is this: Why is all of your money in CD's? That makes zero sense to me because all its doing is languishing away. I think you need to sit down with a financial planner and do some planning. The general saying is that you should always diversify your money. All cash is not the best way to go about things, and trust me- I am extremely financially conservative.

For example, I too also have a fairly significant amount of cash- enough to buy a house ( out of state) or enough to put a chunky down payment on some house in the Bay Area. The cash is all in CD's but for the last few years that has been useless. We're talking like what? a few hundred buxs a year?

The rest of my money is in investments ranging from Roth IRA's, two mutual funds, bonds, a 401k, and a couple of other smaller investments. I'll just say that the old mantra that stocks generally go up on average 7% a year over the long term has some truth in it. In 2010 my stocks were down about 40% from 2007 levels. Now they are all the way back to their previous value plus around another 5% appreciation on top of that. I haven't lost anything and actually gained some in perhaps the worst recession in 70+ years.

To me the financial priorities in life are in this order:

A: Retirement. They say that the average American today will need to have 1 million dollars in retirement by the age of 60. Double that if you life in a bubblicious city, and perhaps more if in a mega-bubble city like the Bay Area. This amount doesn't include the house you live in. That is for one person. At a million dollars, assuming you live to the ripe ole' age of 100- which isn't out the the question- that gives you $40,000 a year. In other words- barely scrapin' by in a place like the Bay Area, hence the required savings would probably be more like 2 million dollars.

B: A house, even though I personally don't put as much on an emphasis on it because in my opinion a house you pay for no longer automatically equals security and stability. Like I said- I no longer trust the job market- and that goes for any profession- to provide me with stable work. I was laid off 2 years ago and it was a huge wakeup call. The game has most definitely changed and its no longer a matter of just picking up a new job. It took A LOT of effort on my part to land a new one. Definitely an eye opener for me.

These are just my thoughts and honestly, I'm just some guy on a forum. Might want to look into discussing this with someone more qualified- like a financial planner.

Good luck with whatever you all decide to do.

learn to live with less, learn to want less,.. stash your cash. don't let you money own you. don't let others manage your money. things are going to get much worse, welcome the change.

take a yoga class
connect with life beyond finances.
learn to not be afraid.
seems like you've earned it.
;-)

I have same question. All home experts please reply. My wife and I have combined salary of $175k. My wife is taking a break for a year as we are having a baby, so we are left with single salary of $110k for about a year. We really like a house for $640k and we want to buy it but not sure if we should go for it. Our rent is going to increase to $2300/ month. We have down payment of about 20 percent.

Is it me or does it seem a tad funny that there are people still throwing around ideas of spending 500k+ on a house? I thought that line of thinking had disappeared. I guess not.

edvard2 says

Is it me or does it seem a tad funny that there are people still throwing around ideas of spending 500k+ on a house? I thought that line of thinking had disappeared. I guess not.

Well, when you are talking about Marin County or Cupertino or Palo Alto, do you honestly think you will ever be talking about less than $500k for a house?

ch_tah says

Well, when you are talking about Marin County or Cupertino or Palo Alto, do you honestly think you will ever be talking about less than $500k for a house?

Of course not. I'm just sayin'. I've lived here for 12 years and came from somewhere where houses are still 150k. People always tell me its naturally more expensive in the Bay Area. But 600,700,800k? For a house? I mean-seriously. Yeah yeah yeah we all know... But honestly? No freakin' way will the thought of paying that kind of money- for a house- ever cross my mind.

Sorry for stating the obvious. I guess I haven't been conditioned yet.

edvard2 says

Of course not. I’m just sayin’. I’ve lived here for 12 years and came from somewhere where houses are still 150k. People always tell me its naturally more expensive in the Bay Area. But 600,700,800k? For a house? I mean-seriously. Yeah yeah yeah we all know… But honestly? No freakin’ way will the thought of paying that kind of money- for a house- ever cross my mind.

Sorry for stating the obvious. I guess I haven’t been conditioned yet.

I completely agree with you. I've lived here about the same amount of time and came from somewhere where waterfront properties on half acre plots don't cost half as much as a tiny POS in Palo Alto. Until things crash, which I personally don't see happening, you have to pay what the going rate is or move. And I don't fault those who move.

I think we got side tracked. Could you all please go back to original question ?

I have same question. All home experts please reply. My wife and I have combined salary of $175k. My wife is taking a break for a year as we are having a baby, so we are left with single salary of $110k for about a year. We really like a house for $640k and we want to buy it but not sure if we should go for it. Our rent is going to increase to $2300/ month. We have down payment of about 20 percent.

leo9 says

I think we got side tracked. Could you all please go back to original question ?
I have same question. All home experts please reply. My wife and I have combined salary of $175k. My wife is taking a break for a year as we are having a baby, so we are left with single salary of $110k for about a year. We really like a house for $640k and we want to buy it but not sure if we should go for it. Our rent is going to increase to $2300/ month. We have down payment of about 20 percent.

I'm not sure what a home expert is, but here's a response. Have you used any calculators to analyze this yourself? You have provided very little information. Particularly, if you have 20% to put down, how much are you left with? Are you sure your wife will go back to work after 1 year? Have you looked at how much daycare is if she does go back to work? Do you have other big expenses?

This is very good point. After putting 20% we are not left with much money. Say $40K at the most. My wife will go back to work for sure after an year. Our salary will be back to normal which is $175k. Day care expense runs around $1500 in bay area.