patrick.net

Down payment $17,500 -- This is a problem.

Those numbers don't look right for 481 k home with only 17.5 down your mortgage is going to be north of $3100 a month,then add on your HOA and you are probably looking at $3400/month.

Also, you can't get a 3/2 in SJ for that price.

Yeah, you're way off. Keep saving. 500K will not get you a 3/2 in SJ as stated.

When you have 100K + saved, start looking.

http://fhamortgagemag.com/2012/04/do-fha-low-down-payment-loans-make-financial-sense/

FHA is a kind way to say you are subprime.

subprime means you are paying for it in fees and interest/(insurance to buy down interest). Unless you find a home that is an absolute steal and something you love and still cheaper than rent, subprime route is not smart as you are just pissing money away as explained later.

10K lender credit means they paid for the 1.75% (FHA upfront fee) and offset some other fees so so true fee is closer to $540. The monthly mortgage insurance will make you barf, as you just piss off close to $540 a month for something everyone avoids. That is why your effective APR is 1.3% higher than than stated APR. The cost of being subprime is 539 bucks a month down the toilet. As a comparision, homeownder's insurance is $100 a month but your FHA insurance is paying (over compensating) for your predecceor's screw up. The insurance will fall down overtime and may be avoided altogether in 10 years, but it will cost you a whole lot of money when it is all said and done.

subprime loan means subprime neighborhood. are you ok with that? In a competitive market, your FHA bid will not take you far outside the boundary of a lower class neigborhood

SFace says

The cost of being subprime is 539 bucks a month down the toilet.

PMI/MIP is tax-deductible tho

bid like there is no tomorrow. good things will come.

It will be tough to compete against conventional buyers and investors for lower priced 3/2 SFHs in San Jose. Sellers will take a look at your FHA loan and low down payment and pass you over unless the house has been sitting on the market for a while.

Your loan has a higher chance of not closing than others. A low down payment can't overcome a low appraisal, and FHA loans require stricter inspections. If your loan doesn't close, the seller will have to relist the house which never looks good, so they are less likely to accept your riskier offer.

The APR is so high because of the mortgage insurance premium on FHA loans. Something else to consider is that the MIP will not be tax deductible anymore in 2014, and never was deductible if you made over 100k.

Bellingham Bill says

SFace says

The cost of being subprime is 539 bucks a month down the toilet.

PMI/MIP is tax-deductible tho

MIP was only deductible if you made under $100k (or under $50k if married filing separately), and it will no longer be deductible in 2014.

Why do sellers care if it's FHA financing? Do they fall through more often?

wave9x says

and it will no longer be deductible in 2014

woah; my hours wasted here actually was worthwhile!

http://lancasteronline.com/article/local/926452_8-tax-breaks-that-expire-at-the-end-of-2013.html

I see sales tax deduction is also going away apparently.

What the Dem congress giveth, the GOP congress taketh away!

tatupu70 says

Why do sellers care if it's FHA financing? Do they fall through more often?

Yes.

No need to worry about saving up a vital organ. Pay as little down as you can and take out a double mortgage with a balloon.

3X your annual household income is the MAX house you can afford. Do not go beyond that amount.

tatupu70 says

Why do sellers care if it's FHA financing? Do they fall through more often?

sellers don't care, RE pukes do.

Bap33 says

3X your annual household income is the MAX house you can afford. Do not go beyond that amount.

That's a good rule of thumb, but hardly a certainty.

tatupu70 says

Why do sellers care if it's FHA financing? Do they fall through more often?

Most of they time they don't care where the money comes from. But you have to understand sometimes a realtor wants to push their own investor friend's bid ahead so they structure it to look like the other choices are inferior.

The whole industry runs on the honor system.

Bap33 says

3X your annual household income is the MAX house you can afford. Do not go beyond that amount.

Words of wisdom there Gragorin. If you stretch yourself too thin you'll only suffer at the end.

Gragorin,

I am just about done following this website. The only reason I looked at it today was to try to figure out how to delete my account (I cannot figure it out).

Don't expect to look at it again.

If you want an opinion from me, I will tell you in person at City Lights Expresso in downtown Santa Clara some time.

- Bay Arean, Cool And Hip.

I hate to see you go B.A.C.H. You gave depth in your comments and you have a longtime understanding of life in the bay area which is always helpful . You have a different perspective than the usual narrow minded thinking observed to often on this site. I hope you change your mind and stay connected.

You'll suffer financially if you pass the 3:1 price:income ratio. There are no exceptions.
MI= mortgage insurance. It's quite high, but looks like they sort of built it Ito your loan somehow. Maybe that way you could write it off? One thing is sure, you haven't got the down payment to be buying a house right now. Learn to live on less first and save up money. We are likely at market peak right now anyway.

Not true. More specifically, a high wage earner can far surpass that amount as proportionally your disposable income will be much higher. For example...

200k income
900k property (180k down)
4% interest rate = Approx. 3,500 payment
Property tax/tax deduction = nearly a wash (at least in the Bay Area)

Therefore, at 4.5 times income you're left with over 5,000 of take home income after housing costs (filing single with limited other deductions). Plenty to live off of and more than what most make before housing costs.

lattitude says

Property tax/tax deduction = nearly a wash (at least in the Bay Area)

How is $850 a month you would pay in taxes on a 900k home a wash?
It sounds like a massive expense that you will not see again.

Quigley says

You'll suffer financially if you pass the 3:1 price:income ratio. There are no exceptions.

That is incorrect. Many expenses are more or less fixed, so as one's earnings rise, the price:income ratio can rise as well without causing financial pain.

evilmonkeyboy says

How is $850 a month you would pay in taxes on a 900k home a wash?

It sounds like a massive expense that you will not see again.

I think the math is the twin deductions covers the property tax. (~4% in deductions x 35%+ marginal rate = ~1.2% property tax)

(I first noticed this when spreadsheeting a condo purchase in 2002 -- the number for the tax benefit was just about the property tax + assoc fee)

tatupu70 says

Many expenses are more or less fixed, so as one's earnings rise, the price:income ratio can rise as well without causing financial pain

also, as interest rates fall

http://research.stlouisfed.org/fred2/series/MORTG

er, fell, the math changed significantly. $200,000 at 8% is a different burden than $200,000 at 4%.

I let the reader do the math.

Quigley says

You'll suffer financially if you pass the 3:1 price:income ratio. There are no exceptions.

Which means you need $500k/year to buy a simple 3/2 in San Francisco. See why I won't buy in San Francisco?! I don't make that kind of money!

lattitude says

Therefore, at 4.5 times income you're left with over 5,000 of take home income after housing costs

Please show your math.

Don't go above 3:1.

Don't buy unless you can afford a conventional loan. FHA will leave you paying PMI forever.

You can get a conventional loan with only 3.5% down payment. The lenders won't tell you so you better ask.

tatupu70 says

so as one's earnings rise,

Or fall...

mell says

Don't go above 3:1.

That's not how it works in Victorville, Mell.

FunTime says

lattitude says

Therefore, at 4.5 times income you're left with over 5,000 of take home income after housing costs

Please show your math.

200K = 16,667 gross. take home pay is around 10K-11K with the benefit of the MID and your deductions, 401K, health, insurance. Say 10K take home which is very reasonable for this profile.

Mortgage = 3,500 @4%
Prop tax = 1,000
Insurance/Main 500
Housing expense 5,000

so take home of 10K less 5K in housing expense leaves 5K for everything else. It's a simple margins concept where incremental salary increase can support a lot more housing once basic neccesities are taken care of.

So the rule is there is no rule, just do the actual budget.

evilmonkeyboy says

lattitude says

Property tax/tax deduction = nearly a wash (at least in the Bay Area)

How is $850 a month you would pay in taxes on a 900k home a wash?
It sounds like a massive expense that you will not see again.

The Mortgage interest deduction is the most lucrative around the 200K income level. (28% fed bracket and 9.8% state bracket or around 33-35% net of state tax deduction and income too low for AMT) Instead of using stated rates, it is easier to think about permanent cost net of tax deduction.

prop tax net of tax deduction is around 0.82% (1.25%@65%)
Interest rate net of tax deduction is around 2.75% (4% @65%)

So prope tax net of tax benefit is $615
Intererst rate savings @1.25% is $750 less in income taxes.

So not only does MID pays 100% of property tax it pays for homeowners insurance as well which is around 100 bucks a month. To think of it another way while you are paying property tax to your county, you also don't pay the fed and state by an even greater amount.

SFace says

Mortgage = 3,500 @4%

Prop tax = 1,000

Insurance/Main 500

Housing expense 5,000

Thanks. I figured basically the same, but the PITI calc isn't as familiar to me as others here.

tatupu70 says

Bap33 says

3X your annual household income is the MAX house you can afford. Do not go beyond that amount.

That's a good rule of thumb, but hardly a certainty.

I agree. But, if a person "earns" their payment through "wages", and has a desire to pay-off the home at some point, then I kinda think it is a rule. If the buyer has a short term selling idea, or has no plan to ever stay put, or does not plan to own, or is willing to gamble, or sees a benefit worth the difference (good area, view, schools, ect), then that 3:1 ratio can move around. But, I submit it should be slid down when the same variables are negatives. In an area like the 209, a middle-class subdivision home is only worth 2X the middle-class HHI, in my opinion. Real numbers in 209 would be something like 45K HHI X 2 for a 90K home. The trouble is, Section 8 hands out $1,000 a month to rent these mid-level houses that can be bought for 1/2 that amount in payments, so most middle-class subdivisions in the 209 are becoming gang slums. This is forcing the regular people that do not want to live in tijuana to sell to the investors and then to pay more-than-value to get into areas that are not infested - yet.

The way is looks to me is, the REMafia has parlayed their position by gathering up lots of SFH's, having taxpayers pay the note through Section8, and then drive the productive middle-class out of the middle-class subdivisions, and into higher-cost areas, by infesting the area with scum. Graffitti, gangs, drugs, violence, loud music at all hours, little dogs running through the streets, cars parked on the front yard ..... all coming to a subdivision near you if Section8 is not removed from the SFH market.

p.s. Section 8 allows people to BUY also.

In the meanwhile, stupid people are rewarded with laon modifications. That is absurd. That is welfare for stupid people. Once again, anyone not stupid enough to go into debt at 10:1 HHI, and then HELOC every penney they can from the asset, and then make zero payments for 5 years, and then get a loan modification -- is the one paying the way for those who were that stupid.

Back on topic: 3:1 is a good rule for anyone coming on Patrick.Net for good advice. If you are wealthy enough to go beyond that ratio, you can just use the tried and true system of telling your REMafia member, "I can afford this much $___ per month", and out of the goodness of their heart they will find a home that takes (just a little bit more than) that amount for you to own.

Bellingham Bill says

SFace says

The cost of being subprime is 539 bucks a month down the toilet.

PMI/MIP is tax-deductible tho

It is however quickly phases out if your AGI is over 100K a year, full phase out around 110K if I recall.

I thought it was tax deductable and got screwed come tax time cause of the phase out..