Future Home Buyer Reality Check!

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NimbleSexyXquisite

Experienced Member
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20 May 2006
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http://money.cnn.com/magazines/moneymag/bplive/2006/top25s/priceyhomes.html

All but 2 cities not in Cali. This is depressing for us young people trying to buy a home. :frown:

How about people comment on the area and their average recent prices and how they either have fell or rise within the last year. And you thoughts about the future? Will the Fed raise rates? Appreciation in your area now and the future? Does any one use a Option ARM? What is your Mortgage payment? Rate? Term? Loan? Advice for the Young and Restless. :biggrin:

I like asking the opinions of this forum, because usually you have to be grown up and savy to own a NSX. The input has always been great.

Im trying to buy in Arcadia, the median in $702,000. Planning to use a Option ARM with a start rate of 1% (Anyone has this Loan, please describe how your payments have been hiked). Using Rich Dad Poor Dad method of OPM and rent out some roomsto help with the mortgage. My FICO is 720. Income is 60K now. I guess I want to get my foot in the door before prices go up again ( Do you think?).

Well hopefully can spark a great thread of responses. Take care fellas!
 
I assume you're not buying a 700K home with a 1% option ARM are you? :eek: If so... you need at least 5% down for a 1% option ARM at that purchase price ($35K) for starters...

The max 1st you can get w/o PMI is at 80% LTV--on a $540K loan amount (80% LTV) your 1% start rate payment will be $1801.18;

Then you have to get a 2nd MTG for the remaining 15% LTV, on a $105K loan amount that's $999.94 assuming ~11% interest;

Your taxes + insurance will be ~$750/month;

So you're out the door at ~$3,550/month. You say you'll have roomies maybe pitching in $800--so you'll need to come up with about $2,700/month. If you make 60K before taxes $2,700 comprises about 66% of your take-home pay, give or take. That leaves about $1,300 disposable income for ALL your other bills.

So, if you think you can handle that go for it.

But...consider that your interest will be deferred at a rate of about $1,500/month. That's $18K/year. After 3-5 years you'll be kicked out of the neg-am feature and have to pay a fully indexed payment on the 1st MTG that could be in the neighborhood of $3,200/month on the 1st MTG alone. This means you're now looking at about $5,000/month and $4,200 out the door with rent coming in. That's ALL of your take home pay.

Consider that the market may very well still be slow in CA in 3-5 years and you may be upside down on the home, meaning you can't refinance into another neg-am or interest-only or even a fixed loan at all. You'll be subject to the fully adjustable rate on the original option ARM and it could keep going up and up...

So, I'd say an Option ARM at this time on a loan of that size could be very dangerous. Keep your $35K in the bank and go with 100% financing with an interest only loan or fixed product on a much cheaper home. Use the reserve for emergencies.

Remember, if you're going with an option ARM you must consider where you'll be and what the property will be worth when the low neg-am payment goes bye-bye. At least with interest only or a fixed rate loan it takes the risk out of the future and minimizes the risk of being unable to retain your home because of huge payment changes.

Don't sacrifice the future to squeeze by in the present unless you know for sure you'll be OK when the clock strikes midnight. For example, if you knew you'd be making double the salary at that later date then by all means, go with an option ARM. Or if the property values were very likely to skyrocket by that time, go for it. That seems very unlikely in CA in the next 5 years based on most experts.

IMO it will be a very good buyers market for several years to come. One would want to concentrate on taking the time to find the best home and play for long-term appreciation meaning you can find a better home for less money nowadays. This would allow you to position yourself a little more securely and take a lower payment since you can get more house for your money right now. Take advantage of that atmosphere and take a payment you can afford now and get into a loan program that won't slam you in 3-5 years.

I wouldn't plan on CA home values increasing substantially for at least 5 years from now. Better to position yourself that way than to be praying the home appreciates before your payment goes up.
 
Wow, I'm afraid to ask what size home 700k is in Arcadia. (I've been there several times)

My advice. Move.:wink: I don't see how people afford housing out there. 700k will buy you about a 6000+ sq ft NICE home here.
 
Yah.... in northwest TN, a family just built a $500,000 house, and it has been the talk of the town for months. 5000 sq ft all brick BEAUTIFUL home! I sold my 2 story, 2800 sq ft old home for the princely sum of $45,000.
 
first time home buyers are screwed in massachusetts as well. i'm paying $1700/mo for rent because you cant get a house anywhere for under $400K around this area. I'd have to move into NH (where the property taxes get you).

I make pretty decent money and it pisses me off that I didn't buy back in the mid-late 90s when I had the $$$, was single and still thought houses were too expensive. I thought my buddies spending $200K on homes were insane. Now look who's laughing.
 
Nsxgms gave you great advice,take it!If your carry costs for a home are more than 50% of your total net income per month you will struggle,and be unhappy.
 
small writing above thos number..."based on median sales price 2005)



NimbleSexyXquisite said:
http://money.cnn.com/magazines/moneymag/bplive/2006/top25s/priceyhomes.html

All but 2 cities not in Cali. This is depressing for us young people trying to buy a home. :frown:

How about people comment on the area and their average recent prices and how they either have fell or rise within the last year. And you thoughts about the future? Will the Fed raise rates? Appreciation in your area now and the future? Does any one use a Option ARM? What is your Mortgage payment? Rate? Term? Loan? Advice for the Young and Restless. :biggrin:

I like asking the opinions of this forum, because usually you have to be grown up and savy to own a NSX. The input has always been great.

Im trying to buy in Arcadia, the median in $702,000. Planning to use a Option ARM with a start rate of 1% (Anyone has this Loan, please describe how your payments have been hiked). Using Rich Dad Poor Dad method of OPM and rent out some roomsto help with the mortgage. My FICO is 720. Income is 60K now. I guess I want to get my foot in the door before prices go up again ( Do you think?).

Well hopefully can spark a great thread of responses. Take care fellas!
Click to expand...
 
Thanks NSXGMS,

Great Advice! That's why I love this forum. As for PMI, 80/20 Loan will do that away. As for Neg Am, that might be my biggest concern. I've been hearing a lot of horror stories, since the Option ARM interest rate is sensitive to the prime rate, People have experience Neg Am faster than expected. So IO ARM will be the way to go. Maybe like a 5 Year IO ARM. So great advice on that.

As for the price, I would love to buy a 700K House. 700K would be a 8,300 Sq. Ft. Property and a 1,200 Sq. Ft Home 3bed/2bath.

But I found a home for 500K, 5,000 Sq Ft Property, and a 1,050 Sq Ft Home 3bed/2bath.

So I've been torn. Get my foot into a house or Get my foot on the trottle of a NSX! :biggrin:

Im playing the waiting game, for now. So the great advice is Greatly Appreciated.

Good Looking out NSXGSM! And you a BoSox's fan? Damn I wanted the Dodgers to get D-Mat! Errr...Im jealous, BoSox starting rotation is looking sick, D-Mat and Jon Pap! Nasty!

If you live around the Los Angeles area please give some advice about you city, maybe I would consider somewhere else.

Take care fellas. Go Dodgers! :biggrin:
 
Do you work in Arcadia?

I would look for home in other area instead of Arcadia in So. Cal. There are many other great community to live in with a much lower price tag. (Depands on how far you are welling to travel to work)

I do have Option ARM for my renter in Rancho Cucamonga, it is working out well for me since my first is only $360K and that translate into under $1300/month. I have had it for over 18month now and still kept it that way.
 
Ugh! Rates are on the rise! Watching CNBC! Ugh!

Reason why I want to buy in Arcadia, I have a family, friends and a client base here. And being that this will be my future home for my family I want my children to attend Arcadia High School.

But I am always flexible else where. Just running through the options and asking for all this great advice and opinions.

Anyone live in Westwood, West L.A. or West Hollywood? Opinions on your local market.
 
NSXGMS said:
I assume you're not buying a 700K home with a 1% option ARM are you? :eek: If so... you need at least 5% down for a 1% option ARM at that purchase price ($35K) for starters...

The max 1st you can get w/o PMI is at 80% LTV--on a $540K loan amount (80% LTV) your 1% start rate payment will be $1801.18;

Then you have to get a 2nd MTG for the remaining 15% LTV, on a $105K loan amount that's $999.94 assuming ~11% interest;

Your taxes + insurance will be ~$750/month;

So you're out the door at ~$3,550/month. You say you'll have roomies maybe pitching in $800--so you'll need to come up with about $2,700/month. If you make 60K before taxes $2,700 comprises about 66% of your take-home pay, give or take. That leaves about $1,300 disposable income for ALL your other bills.

So, if you think you can handle that go for it.

But...consider that your interest will be deferred at a rate of about $1,500/month. That's $18K/year. After 3-5 years you'll be kicked out of the neg-am feature and have to pay a fully indexed payment on the 1st MTG that could be in the neighborhood of $3,200/month on the 1st MTG alone. This means you're now looking at about $5,000/month and $4,200 out the door with rent coming in. That's ALL of your take home pay.

Consider that the market may very well still be slow in CA in 3-5 years and you may be upside down on the home, meaning you can't refinance into another neg-am or interest-only or even a fixed loan at all. You'll be subject to the fully adjustable rate on the original option ARM and it could keep going up and up...

So, I'd say an Option ARM at this time on a loan of that size could be very dangerous. Keep your $35K in the bank and go with 100% financing with an interest only loan or fixed product on a much cheaper home. Use the reserve for emergencies.

Remember, if you're going with an option ARM you must consider where you'll be and what the property will be worth when the low neg-am payment goes bye-bye. At least with interest only or a fixed rate loan it takes the risk out of the future and minimizes the risk of being unable to retain your home because of huge payment changes.

Don't sacrifice the future to squeeze by in the present unless you know for sure you'll be OK when the clock strikes midnight. For example, if you knew you'd be making double the salary at that later date then by all means, go with an option ARM. Or if the property values were very likely to skyrocket by that time, go for it. That seems very unlikely in CA in the next 5 years based on most experts.

IMO it will be a very good buyers market for several years to come. One would want to concentrate on taking the time to find the best home and play for long-term appreciation meaning you can find a better home for less money nowadays. This would allow you to position yourself a little more securely and take a lower payment since you can get more house for your money right now. Take advantage of that atmosphere and take a payment you can afford now and get into a loan program that won't slam you in 3-5 years.

I wouldn't plan on CA home values increasing substantially for at least 5 years from now. Better to position yourself that way than to be praying the home appreciates before your payment goes up.
Click to expand...

Ditto. Having done RE for 4+ years now and managing tenants & remodeling projects, I can say that financials are super important and now is a careful time to tread.
Right now, it feels very much like 1999 when everyone was still throwing the old economics out the door..

Nonetheless, I still advise that if you can get a reasonable loan (non-option ARM ) with at least 5/10% down, be patient and shop around for a good house, and you're in it for 5+ years, you'll be ok no matter 'what happenes' Owning a house provides great advantages (and responsibilities) as well

Come to Seattle, it's cheaper, I may be an agent in a few months :)
 
NimbleSexyXquisite said:
Anyone live in Westwood, West L.A. or West Hollywood? Opinions on your local market.
Click to expand...


I lived in Bel Air for a while, and now in Beverly Hills. I was going to buy a home in Bel Air this summer, but I didn't due to the fact that I would have had to use up my life savings and every penny in my trading accounts in order to put down a decent size down payment. Just to give you an idea, the Mansion I lived in was at one point worth 3.5 mil, just recently the owner was talking about putting it on the market and was going to take offers starting at 2.2 mil. Mind you this was a 5000+sqft mansion, 14ft ceilings, located in the bellagio west gate, primo primo primo location, can't get better.The other home I was thinking about buying was right up the street from the mansion, first listed at 1.7 mil in July of 2005 (near mulholland dr. 3 bed 3 bath, 1 story, pool, 2 car garage, 2400sqft, lots of flat, usable land, fortress like gate, blah, blah, blah...... No palace, but very freakin' nice). Eventually they cut the price to 1.3, at which point I offered 1.1 (which still would've been pushing it for me). My offer was denied, and the property is still for sale. This was 4 months ago......... So i'll wait 2-3 years and get a nice discount.

Basically the market has softened, but still has waaaaaaaaaaaay more downside imho, especially down in the not so affluent parts of Orange County. Think about how much that home in arcadia you're looking at sold for just 3-4 years ago, probably half of what you're about to pay. Think about what it sold for 3-4 years before that, about half of that amount..... Although i'm too young to have lived through a real estate boom/bust i'm fortunate enough to be around people who themselves are very savvy investors and have made and avoided losing a lot of money in real estate.
I'll call it right now and don't take it personal please, but that home will be worth 2/3rds of what it's worth now in 2-3 years, if not less. Think about how much your payment would be for that house? You'll be blowing at least $3500.00 on interest alone per month, for what? A property that's declining in value. Just for example a friend of mine bought a fairly decent town home in Garden Grove in the summer of 05 for $450k. He put 10% down. This past summer he bought a house right down the street for $700k. His townhome is still for sale and he has reduced the price to $420k (he put it out at $500k). Meanwhile, every couple months or so as he decreases the asking price by $10-$20k the value has already come down by that much. Point is, he's stuck with a townhome he can't sell, and is dumping $2500 per month to pay the mortgage. Meanwhile he has a house that's losing value as we speak. It's probably gone down 10% + since he bought it. I don't think arcadia is too different.........

The home prices in SoCal make no sense at this point. In the affluent areas, $1 million plus for a home makes sense because you have maybe 5% of the population that can afford it. But $700k for a starter home? in a lower middle-middle class city/neighborhood? Who makes that much? The dange signal should have flashed when we saw homes in compton going for $350k and up.

My friend above constantly criticized me for "wasting" my money on my NSX and not putting a down payment on a home. Sad thing is my NSX might actually go up in value in the next 2-3 years, his homes won't.

If you're at all hesitant just wait it out like i'm doing. Have a few hundred grand saved up in 2-3 years and get ready to buy some properties and make a lot of money..... Bottom line, it doesn't make sense to buy right now, especially since (and I think we can all acknowledge this) property prices are goin down and have a long way to go. Any money you're paying will be paying interest anyways.

Why not just rent in a nice area for now? I'm paying $2600 (ALL utilities included by the way) per month for a 2 bed 2 bath 1400sqft apt. in Beverly Hills. I have 10 foot ceilings, hardwood floors, it's lavish. I live next to the freakin Beverly Wilshire Hotel and right behind Barneys for god sakes! It's a 30 second walk to all the stores and rodeo drive, etc........... I've been through the whole agony of should I buy, should I not....... My absolute last offer was for a 1 bed/1bath oceanview condo in redondo beach, for $600k. I didn't get the place because somebody else bid $620k. Good for them. My expenses would've been close to $5k a month on an interest only loan and 10% down. I'm getting a better deal now :)


Sorry for being so long winded. Real estate is just an extension of what I do for a living (trading stocks), which i've been doing since I was 12. One of the things that the two have in common is the psychology that drives the 2 markets, after all a home can be likened to a share of stock. I see many similar patterns and it scares me. But that's just my call........ I'm doing the 2002 conversion and a supercharger :), i'll buy a house down here later for a lot cheaper.

Check out this site for more reasons on why you shouldn't buy right now:
http://patrick.net/housing/crash.html
 
NimbleSexyXquisite said:
Ugh! Rates are on the rise! Watching CNBC! Ugh!

Reason why I want to buy in Arcadia, I have a family, friends and a client base here. And being that this will be my future home for my family I want my children to attend Arcadia High School.

But I am always flexible else where. Just running through the options and asking for all this great advice and opinions.

Anyone live in Westwood, West L.A. or West Hollywood? Opinions on your local market.
Click to expand...

I'm a RE and I had live from downtown LA (78-88), Temple City/Arcadia (89-94), Rowland Height areas (95-03) than Rancho Cucamonga and now the new development area of Corona (just east of Chino Hills).

I do know these area well if you wish give me a buzz on my email and we can set a time to chat in more detail for you.

James Lee
[email protected]
 
NimbleSexyXquisite said:
http://money.cnn.com/magazines/moneymag/bplive/2006/top25s/priceyhomes.html

All but 2 cities not in Cali. This is depressing for us young people trying to buy a home. :frown:
Click to expand...
It is really depressing for us young ones. I've got a small family now, was hoping to buy, but saw housing prices jump 30%-50%/year in the area I live in (which is pretty disconnected from most of SoCal). With what appeared to be drastically overinflated prices, I couldn't see myself buying when I was ready last year.

I appreciate reading what others say here too. I'm looking at moving out of state and buying within the next year or so for long term. I'm hoping that the market continues to soften a bit over the 6 months, so I can get in.

Nimble- what about a condo or townhome to start with, and step up a once or twice later? You get the tax benefit of owning and no capital gains if you live in each one long enough. That was my plan before I decided to move to a more affordable area.
 
Hey Patrick,

Good luck with all you future endeavours.

Reason why I wouldn't buy a Condo is because the high price and lack of value in the future. I prepfer buying a home with a large lot. My father is a General contrator and we build homes. So I've always grew up never interested in condo's. With a home you have infinite possiblities to work with (Consider obeying zoning and codes).

I have family in Everett Washington, so I always have a chance to move up there. Its clean and green up there, but it just rains too much. But a ultimate and great opportunity there for a lot growth.

Next I could decide on Arizona, Glendale, Peoria, Chandler and some great up and coming communities. I visit Arizona every year for spring training(MLB), and It's nice. Homes are realitivily low price and you get a nice house with a decent lot. The only thing is that its the hottest place to live in America.

So it really sucks to be born and raised in California, because we get used to the best climate in the World! So odds are I'll just bite the bullet and pay for a place I like. I'm never afraid to work harder for what I want.

The advice is great keep it coming.

Anyone live in the OC, Torrance, maybe San Deigo, want to comment about their current real estate market.
 
Yes, very depressing for us hopeful home buyers that don't make individual six figure + incomes. I mean, we are over six figures between my wife and I, but here in Hawaii median prices are still about $650K for 1200-1400 sq ft homes. If you want to move into decent locations the price jumps to $700-$800K. The only saving grace for me right now is that I know I will inherit my fathers 1 acre land in the future were I can rebuild a nice house. Otherwise I'd have to buy a grass shack somewhere or live in a tent on the beach. Personally, I think housing prices were I live are $100-$150K too high. The only people buying homes in Hawaii are foreign investors. Locals are priced out already. The median selling price has been rising, and only started to stabilize a few months ago, yet the actual number of sales for condos and single family homes have been dropping each month for the last year. Less people buying yet the prices are still going up? Makes no sense too me.:confused:
 
As others have stated, stay away from the option arm, at least for now. I suggest you look at BofA's rates if you consider getting a loan. BofA has a program called ACORN which is not necessarily fico driven and has a fully indexed rate 3/4% lower than whatever the market rate is at that time. Only thing required by the homeowner is that he/she attends a seminar prior to signing.

I suggest looking around for a cheaper house you can afford paying for fully indexed, or at least interest only, and not on a neg am, then as the market starts to appreciate again, get a bigger house if you really want that baller status on a neg am, when it's safer and more beneficial to have that type of loan. Although, I don't see anytime in the near future our market seeing 20% appreciation in a year.

In the meantime, if there isn't any homes that you can afford, look into buying a condo. Owning a condo still beats paying rent.



PS: I'm a BofA AE :wink:
 
FrEsHaZzBuRu said:
As others have stated, stay away from the option arm, at least for now. I suggest you look at BofA's rates if you consider getting a loan. BofA has a program called ACORN which is not necessarily fico driven and has a fully indexed rate 3/4% lower than whatever the market rate is at that time. Only thing required by the homeowner is that he/she attends a seminar prior to signing.
Click to expand...

That's a hybrid option ARM, no? The fully indexed rate is still index + margin but the "payment" rate (neg-am) rate is 3-4% below the fully indexed rate instead of 1%.

Still a neg-am, just not as bad, and as such has broader more flexible guidelines. Correct me if I'm wrong...
 
NSXGMS said:
That's a hybrid option ARM, no? The fully indexed rate is still index + margin but the "payment" rate (neg-am) rate is 3-4% below the fully indexed rate instead of 1%.

Still a neg-am, just not as bad, and as such has broader more flexible guidelines. Correct me if I'm wrong...
Click to expand...

You are correct. This is still a neg-am. You will see many names for the same loan from different banks. Not as rapid negative with this loan and a little bit easier to qualify with (I/Opayments vs. fully armortized).

There is a serious affordablity issue here in CA. and many other parts of the country. Housing can not continue to climb with out buyers. Eventually the "trading" of homes amongst current homeowners will run dry. Take a look at Newport Beach as an example.... in that link you posted the ave. house price is $1,362,500 but the ave. household income is $93,531. If they did not use Options Arms or have a tremendous amount of equity from the sale of there old house then many of these homeowners would not be able to afford their homes. I know this is just an average and there are many people in Newport and surronding areas that make much much more than the median but this is just and example. Good luck with your search.... I would steer clear of the Pay Option ARM for your first loan unless you can afford the actual payment or even the I/O payment. If used correctly the Pay Option ARM can be a usefull product.

There are some great My community mortgage options for a FTHB. Your income would qualify for this program. With a good FICO the rate should be in the low 6's for a 100% loan with reduced MI on a 30yr. Fixed loan with a Interest Only Option for the first 10yrs. and NO Pre-payment penalty! I think this is great Option for some one starting out. Your best bet is the small fixer upper in the "good" neighborhood. Also consider working close to home. If find a home for much cheaper but further away from work you could be spending the same monthly for a more expensive home with less commute. Best Of Luck!
-Ryan Morrow
 
Aero said:
Wow, I'm afraid to ask what size home 700k is in Arcadia. (I've been there several times)

My advice. Move.:wink: I don't see how people afford housing out there. 700k will buy you about a 6000+ sq ft NICE home here.
Click to expand...


I agree. We are no longer going to California for the winter. I am currently looking for a winter home in Florida. In Florida a house that sells for 500k can be rented for $1500 and a 1M house can be rented for 3k a month. Do the math it is a no brainier to rent. I know the situation is very similar in California. I would not buy again in California, only rent.

Anyways where we live in Upstate NY 700k would buy you a mansion on a lake front. oh and no traffic to contend with, no lines in the stores, and really cold winters. Although this year was not cold until January as a matter of fact it didn't snow until the day after I left.:biggrin: So the only draw backs to upstate ny is the cold AND the taxes. Someone in the 2nd post said on your 700k house in cali you would pay 750 a month in taxes, well in NY you would pay 4 times that a month in taxes, and that is why houses are and will stay cheap in NY for a long time to come.

BTW. The last house I flipped in NY was a 2 bedroom on 3/4 of an Acre and I sold it for 60k IMO was way more than it was worth, of course I did buy it a month before I sold it for 35k so I am a little biased to the sale price being too high. Also again the yearly tax bill on that 60k house is 3500 bucks

It has always been part of the American dream to own a home. I think in some parts of the county that dream is fading and may never return. I Look into the future and see property being owned for generations and families living from the equity and rents from that property. Kind of like in upstate NY, desirable property rarely changes hands and the taxes don't go up as much if the property doesn't transfer through sale.
 
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