Credit squeeze: The problem with down payments

[Ex-SD]

L.A. Land real estate blog: Interesting article by Peter Viles
http://latimesblogs.latimes.com/laland/

“As U.S. banks mop up the mess from billions of dollars of bad home loans, buyers are finding the days of cheap money are over and, in many cases, tougher versions of old lending rules now apply. … Gone are the days when almost anyone could get a loan with a down payment of less than the traditional 20 percent.”

Now the e-mail, from reader LTL: “Today I went online to try and see what I would qualify for if I tried to get an FHA loan. A bit about me, I’m 29, married, with two young children. I’m a lawyer, with household income of $225k/year. We recently relocated back to LA.

“Knowing that the new Freddie/Fannie limits had gone up, Today I went to the FHA website to see what I could qualify for. I saw that the L.A. County mortgage limit had increased to $729,750, which coupled with a 3% down payment, yields a maximum purchase price around $750,000. Or so I thought. Upon running my numbers (225k annual salary, $500/month car payment, $900/month education loan payment), I only qualified for a FHA loan of $362,790 with a 3% down payment of $10,973. It calculated a total monthly housing payment (PITI) of $3661, leaving me over 10k in left over income.

“The same calculator also yielded what I would qualify for with a “conventional” loan. I apparently qualify for a ” conventional” loan of $672,378 with a down payment of $118,655, for a total maximum purchase price of $791,033. My monthly housing costs would be $7,472, leaving $7,541 in remaining income. So that’s almost 50% of my income (and I haven’t figured out how the calculator figures my take home income) for housing.
“I don’t think most people have my annual income, I feel very lucky to make what I do, and I know that census statistics back up my contention that the percentage of people who make more than me is very small. So obviously, the FHA loan program is of little use to buyers in L.A. If I can’t qualify for the maximum amount, who can? And if I went with the conventional loan, I would need over 120k in the bank for a down payment. How many people have that sitting around? Not many. Most buyers over the last few years have put nothing down, let alone 6 figures.

“I would especially be interested to hear what the real estate agents and Cal have to say about what they are seeing when people attempt to qualify.”

Thanks, LTL. Before I ask for comments, an observation: I know many here believe the market should return to the days when a sizable down payment was required to purchase a home. If that comes to pass, the California market will remain weak for quite a while. If you take low-down-payment buyers out of this market, you shrink the pool of buyers sharply.

[Trojan4Life]

Ex-SD,

I’m basically in the same boat as you with above average annual income (@185K), sizable downpayment (about $100K) and all I can get into is a $500K home? Not that it’s not fundamentally sound or anything, but I don’t want to live in any neighborhood that is currently priced in the $500K range in Los Angeles.

I still think there is 15-20% left to drop up here. I’m not even considering buying until next year, which means Uncle Sam is going to get their full measure out of me this year…just the standard deduction!

Trojan4life

[Trojan4Life]

Ex-SD,

I’m basically in the same boat as you with above average annual income (@185K), sizable downpayment (about $100K) and all I can get into is a $500K home? Not that it’s not fundamentally sound or anything, but I don’t want to live in any neighborhood that is currently priced in the $500K range in Los Angeles.

I still think there is 15-20% left to drop up here. I’m not even considering buying until next year, which means Uncle Sam is going to get their full measure out of me this year…just the standard deduction!

Trojan4life

[Trojan4Life]

Ex-SD,

I’m basically in the same boat as you with above average annual income (@185K), sizable downpayment (about $100K) and all I can get into is a $500K home? Not that it’s not fundamentally sound or anything, but I don’t want to live in any neighborhood that is currently priced in the $500K range in Los Angeles.

I still think there is 15-20% left to drop up here. I’m not even considering buying until next year, which means Uncle Sam is going to get their full measure out of me this year…just the standard deduction!

Trojan4life

[Trojan4Life]

Ex-SD,

I’m basically in the same boat as you with above average annual income (@185K), sizable downpayment (about $100K) and all I can get into is a $500K home? Not that it’s not fundamentally sound or anything, but I don’t want to live in any neighborhood that is currently priced in the $500K range in Los Angeles.

I still think there is 15-20% left to drop up here. I’m not even considering buying until next year, which means Uncle Sam is going to get their full measure out of me this year…just the standard deduction!

Trojan4life

[Trojan4Life]

Ex-SD,

I’m basically in the same boat as you with above average annual income (@185K), sizable downpayment (about $100K) and all I can get into is a $500K home? Not that it’s not fundamentally sound or anything, but I don’t want to live in any neighborhood that is currently priced in the $500K range in Los Angeles.

I still think there is 15-20% left to drop up here. I’m not even considering buying until next year, which means Uncle Sam is going to get their full measure out of me this year…just the standard deduction!

Trojan4life

[stpiermj]

I have above average income also and I am in the process of purchasing a new home in Oceanside. I will be using my veterans benefits and I do qualify for zero down CALVET/VA. My debt is essentially zero. I was told by CAL VET that they are getting very strict on underwriting standards. My loan amount will be in the 500k neighborhood (zero down). I am a bit worried they will not have the money when closing time comes. My wife and I have been patiently watching the market for 3 years. After making offers on foreclosure properties above asking price and not ever getting any “counter offer” offers, I decided to look at the “New House” market. There are very few “NEW” higher end single level homes out there. It looks like future new homes are going to be much smaller and less luxurious then the current inventory that exist. I think this home is one of the very few left. I feel like this is a good time to buy this particular real estate, however, I think there will be some really good deals coming from the “even higher end” homes. I am tired of seeing all my income pissed away to Uncle Sam and not being able to do what I want to the home or property I’m renting. There is an unbelievable amount of activity out there in the lower tier market (mulitple offers on the first day for a decent property). I believe the middle tier is getting very close to its bottom, and the upper tier has a long way to go. I can’t buy anything decent in the lower tier, and the middle tier nice homes are getting gobbled up with in a week. I say if you can get in with zero down, do it.

[stpiermj]

I have above average income also and I am in the process of purchasing a new home in Oceanside. I will be using my veterans benefits and I do qualify for zero down CALVET/VA. My debt is essentially zero. I was told by CAL VET that they are getting very strict on underwriting standards. My loan amount will be in the 500k neighborhood (zero down). I am a bit worried they will not have the money when closing time comes. My wife and I have been patiently watching the market for 3 years. After making offers on foreclosure properties above asking price and not ever getting any “counter offer” offers, I decided to look at the “New House” market. There are very few “NEW” higher end single level homes out there. It looks like future new homes are going to be much smaller and less luxurious then the current inventory that exist. I think this home is one of the very few left. I feel like this is a good time to buy this particular real estate, however, I think there will be some really good deals coming from the “even higher end” homes. I am tired of seeing all my income pissed away to Uncle Sam and not being able to do what I want to the home or property I’m renting. There is an unbelievable amount of activity out there in the lower tier market (mulitple offers on the first day for a decent property). I believe the middle tier is getting very close to its bottom, and the upper tier has a long way to go. I can’t buy anything decent in the lower tier, and the middle tier nice homes are getting gobbled up with in a week. I say if you can get in with zero down, do it.

[stpiermj]

I have above average income also and I am in the process of purchasing a new home in Oceanside. I will be using my veterans benefits and I do qualify for zero down CALVET/VA. My debt is essentially zero. I was told by CAL VET that they are getting very strict on underwriting standards. My loan amount will be in the 500k neighborhood (zero down). I am a bit worried they will not have the money when closing time comes. My wife and I have been patiently watching the market for 3 years. After making offers on foreclosure properties above asking price and not ever getting any “counter offer” offers, I decided to look at the “New House” market. There are very few “NEW” higher end single level homes out there. It looks like future new homes are going to be much smaller and less luxurious then the current inventory that exist. I think this home is one of the very few left. I feel like this is a good time to buy this particular real estate, however, I think there will be some really good deals coming from the “even higher end” homes. I am tired of seeing all my income pissed away to Uncle Sam and not being able to do what I want to the home or property I’m renting. There is an unbelievable amount of activity out there in the lower tier market (mulitple offers on the first day for a decent property). I believe the middle tier is getting very close to its bottom, and the upper tier has a long way to go. I can’t buy anything decent in the lower tier, and the middle tier nice homes are getting gobbled up with in a week. I say if you can get in with zero down, do it.

[stpiermj]

I have above average income also and I am in the process of purchasing a new home in Oceanside. I will be using my veterans benefits and I do qualify for zero down CALVET/VA. My debt is essentially zero. I was told by CAL VET that they are getting very strict on underwriting standards. My loan amount will be in the 500k neighborhood (zero down). I am a bit worried they will not have the money when closing time comes. My wife and I have been patiently watching the market for 3 years. After making offers on foreclosure properties above asking price and not ever getting any “counter offer” offers, I decided to look at the “New House” market. There are very few “NEW” higher end single level homes out there. It looks like future new homes are going to be much smaller and less luxurious then the current inventory that exist. I think this home is one of the very few left. I feel like this is a good time to buy this particular real estate, however, I think there will be some really good deals coming from the “even higher end” homes. I am tired of seeing all my income pissed away to Uncle Sam and not being able to do what I want to the home or property I’m renting. There is an unbelievable amount of activity out there in the lower tier market (mulitple offers on the first day for a decent property). I believe the middle tier is getting very close to its bottom, and the upper tier has a long way to go. I can’t buy anything decent in the lower tier, and the middle tier nice homes are getting gobbled up with in a week. I say if you can get in with zero down, do it.

[stpiermj]

I have above average income also and I am in the process of purchasing a new home in Oceanside. I will be using my veterans benefits and I do qualify for zero down CALVET/VA. My debt is essentially zero. I was told by CAL VET that they are getting very strict on underwriting standards. My loan amount will be in the 500k neighborhood (zero down). I am a bit worried they will not have the money when closing time comes. My wife and I have been patiently watching the market for 3 years. After making offers on foreclosure properties above asking price and not ever getting any “counter offer” offers, I decided to look at the “New House” market. There are very few “NEW” higher end single level homes out there. It looks like future new homes are going to be much smaller and less luxurious then the current inventory that exist. I think this home is one of the very few left. I feel like this is a good time to buy this particular real estate, however, I think there will be some really good deals coming from the “even higher end” homes. I am tired of seeing all my income pissed away to Uncle Sam and not being able to do what I want to the home or property I’m renting. There is an unbelievable amount of activity out there in the lower tier market (mulitple offers on the first day for a decent property). I believe the middle tier is getting very close to its bottom, and the upper tier has a long way to go. I can’t buy anything decent in the lower tier, and the middle tier nice homes are getting gobbled up with in a week. I say if you can get in with zero down, do it.

[Anonymous]

STPiermj

If you want to buy a place buy a place, but by renting you are not pissing away money. The current $500K places in Oceanside rent for about $2,000 a month. The interest, taxes, and insurance on a $500K loan is over $5,000 a month. You will get deductions but are you sure you are going to get over $3,000 a month. In fact in this situation buying is the biggest way to piss away your money. Not only do you pay more you are stuck in a depreciating asset. Who would you rather pay your money to the government who pays you military benefit or as interest to some bank that is now more than likely owned by Dubai?

You are right there is a lot of action in the middle tier. However, have you checked the pending foreclosures in those neighborhoods. I was in the same situation in LV. There was a foreclosure that got multiple offers, I said I will wait cause there are ten pending foreclosures within a few blocks. I think come the fall the bidders will drop off like they always do, but more supply.

[Anonymous]

STPiermj

If you want to buy a place buy a place, but by renting you are not pissing away money. The current $500K places in Oceanside rent for about $2,000 a month. The interest, taxes, and insurance on a $500K loan is over $5,000 a month. You will get deductions but are you sure you are going to get over $3,000 a month. In fact in this situation buying is the biggest way to piss away your money. Not only do you pay more you are stuck in a depreciating asset. Who would you rather pay your money to the government who pays you military benefit or as interest to some bank that is now more than likely owned by Dubai?

You are right there is a lot of action in the middle tier. However, have you checked the pending foreclosures in those neighborhoods. I was in the same situation in LV. There was a foreclosure that got multiple offers, I said I will wait cause there are ten pending foreclosures within a few blocks. I think come the fall the bidders will drop off like they always do, but more supply.

[Anonymous]

STPiermj

If you want to buy a place buy a place, but by renting you are not pissing away money. The current $500K places in Oceanside rent for about $2,000 a month. The interest, taxes, and insurance on a $500K loan is over $5,000 a month. You will get deductions but are you sure you are going to get over $3,000 a month. In fact in this situation buying is the biggest way to piss away your money. Not only do you pay more you are stuck in a depreciating asset. Who would you rather pay your money to the government who pays you military benefit or as interest to some bank that is now more than likely owned by Dubai?

You are right there is a lot of action in the middle tier. However, have you checked the pending foreclosures in those neighborhoods. I was in the same situation in LV. There was a foreclosure that got multiple offers, I said I will wait cause there are ten pending foreclosures within a few blocks. I think come the fall the bidders will drop off like they always do, but more supply.

[Anonymous]

STPiermj

If you want to buy a place buy a place, but by renting you are not pissing away money. The current $500K places in Oceanside rent for about $2,000 a month. The interest, taxes, and insurance on a $500K loan is over $5,000 a month. You will get deductions but are you sure you are going to get over $3,000 a month. In fact in this situation buying is the biggest way to piss away your money. Not only do you pay more you are stuck in a depreciating asset. Who would you rather pay your money to the government who pays you military benefit or as interest to some bank that is now more than likely owned by Dubai?

You are right there is a lot of action in the middle tier. However, have you checked the pending foreclosures in those neighborhoods. I was in the same situation in LV. There was a foreclosure that got multiple offers, I said I will wait cause there are ten pending foreclosures within a few blocks. I think come the fall the bidders will drop off like they always do, but more supply.

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