patrick.net

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.

leo9 says

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.

Ok. Yeah, $1500 is a fair estimate. How about doing a spreadsheet with all of your expenses and income? We just used the past few months of bank statements and figured out how much went to food, gas, utils, house payment, etc. It can be very eyeopening and is truly a much better gauge than even people as knowledgeable about housing as E-man telling you, yes or no. Use an online calculator to figure out housing costs and then add everything else in there. Try to think ahead too. Daycare is $1500, but don't forget diapers cost about $45/month, formula if you need it is pretty pricey, etc. Toys - at least a few hundred $ a month. ;) That baby adds up quickly. Also try to guesstimate maintenance costs too.

I have little to add to this discussion, not being a Bay Area resident or having much info on what homes there are worth, but it never ceases to amaze me how high all of your salaries are.

If you have the education, skills, and work ethic to be making six figures (and have spouses who can too!), how can you be so worried about the future?

For comparison, I make about $40-50k per year in one of the world's most expensive cities, saved my money diligently straight out of college, and in my 11th year in the working world paid all cash for my $140k condo, leaving me house-rich and very, very cash-poor. My future wife only went to high school and will never make a high salary.

I wasn't nervous at all about that decision. I was much more nervous about what would happen to my hard-earned cash if inflation robbed me of its value. Buying the shelter that I would need anyway was a no-brainer. Now I've got money saved again and am again worrying about what will happen to my cash.

All of you, stop worrying. Just buy a modest home that costs three or four years' salary and relax.

I do not believe that buying a house will be a losing proposition if you stay there for a long time.
You always will have the option of reverse-mortgage in your retirement. Your kids won't like it but you can get some of the money back from all of your house payments.
Inflation is not very high these days, but the inflation, dropping dollar and so forth make holding cash in dollars eventually a losing proposition. But, it won't go down to zero either.
Vanguard has some bond funds that are not going to suffer a big drop of NAV probably. I own Vanguard Total Bond Index. But, my time horizon for the fund is very long.
Since you cannot borrow for your retirement, I would max out the IRAs if possible, Roth is preferred.
There is a "tax managed" vanguard group of funds which are good at not producing 1099 div income to you each year, which is like a retirement account also for tax purposes, but more flexible.
I think that I would try to keep some of that nest egg invested for retirement even if I bought a house. You can borrow for children's college, they can get part time jobs, etc.

Michinaga says

I have little to add to this discussion, not being a Bay Area resident or having much info on what homes there are worth, but it never ceases to amaze me how high all of your salaries are.

If you have the education, skills, and work ethic to be making six figures (and have spouses who can too!), how can you be so worried about the future?

Well for one, salaries are pretty inflated here in the Bay Area. My husband works part time (30-35 hours a week) as a mechanic and makes about 65k a year or more. I work as a senior sysadmin and make 100k. If we were to leave he would be lucky to make 35-45k and most out of state job offers are closer to the 75-85k range for sysadmin.

For me, I worry about the future because I don't think in today's world one can bank on having both people work, and assume you will always be making as much or more than you are right now. The Bay Area has areas close to job centers with lovely people where you can buy a decent to very nice home for $250k-400k easily.

I am with you, we live in a modest home in a modest area and can survive given the worst case scenario, and we live like this on purpose. One can live like this just about everywhere. But in the Bay Area, everybody "needs" to live in certain zip codes to feel like they have any self worth. It's sad.

merlino says

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

interested in being an angel investor?

Great, another "young talent" brought to the bay area to drive up an inflated housing market. How about learning to live with a little less and giving something back to the community (and no, being a doctor or whatever you are doesn't count because you are well compensated for it)?

Tude says

in the Bay Area, everybody “needs” to live in certain zip codes to feel like they have any self wort

Not everybody.

Just everybody who has those kinds of values.

Sikit says

Great, another “young talent” brought to the bay area to drive up an inflated housing market. How about learning to live with a little less and giving something back to the community

Yep.

Sikit, scroll back to my remark # 743990 that one of Our Bay Area Brethern took "no offense" to.

If I had his income I'd be seriously investing into other businesses right now.

ChrisLA says

If I had his income I’d be seriously investing into other businesses right now.

It's not a business, it's a residence. Not too many people think of their housing cost as owner's equivalent rent.

Sybrib says

ChrisLA says

If I had his income I’d be seriously investing into other businesses right now.

It’s not a business, it’s a residence. Not too many people think of their housing cost as owner’s equivalent rent.

I can't really consider a house an investment, it doesn't make anything.

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.

Yes, expensive during the bubble years, but like so many other bubbles more of a myth. We certainly saw more economic growth in 80s and 90s, but prices didnt inflate to such a level as they have more recently. Facts may support the region peaked by year 2000, and we may not see such grand growth decades forward. So many after 2000 may have been betting we have huge growth in tech as we had before, but that may not be case.

ChrisLA says

Sybrib says

ChrisLA says

If I had his income I’d be seriously investing into other businesses right now.

It’s not a business, it’s a residence. Not too many people think of their housing cost as owner’s equivalent rent.

I can’t really consider a house an investment, it doesn’t make anything.

Chris I agree with you but did not say it explicitly: he says he's thinking about it as an investment, but his post belies a reality it's more about consumption. Oh well maybe it's a psyche-ic investment.

I am in same boat. Currently, I make 180k base salary and have 140k saved up for a home. I was looking at homes under 500k in Santa Clara, Mountain View, Los Gatos, and San Jose. All were major fixer upper foreclosures that need 100k plus of repairs and year of contractor repair work done! Decent move in ready homes are still way overpriced selling for 750k and up! Bank approved me for 850k for a home but I decided to rent for a while since I am new on the job and anything can happen these days with the economy. It is sheer madness how overpriced the real estate market is in bay area!