A 26-Year Old's Perspective

NEW -> Contingent Buyer Assistance Program
IT-Guy,





The bank would have the first mortgage and the "old homeowner" or "seller" is the second mortgage holder. In the event that you default on the loans, and the house were to go into forclosure(default) the bank gets their money first when the house is sold at auction. Whatever is left over goes to the second mortgage holder(or old homeowner)





As far as the bank is concerned you are purchasing a house with 20% down, so it looks like a traditional mortgage to them. The sellers that have the second mortage are taking most of the risk in the transaction. They stand to lose the 20% in the event that you default on the loan.





You see, in the old days, banks would make home buyers put down 20% just in case the value of the home went down and the house went into forclosure. This way the bank was almost certain to get their money back.





This is a similar structure to the 100% financing that was going on for the past 6 years. One bank would loan the down payment(20%) and another bank would loan the other 80% of the housing cost. In the event that payments are not made, either the first or second mortgage holder can force a forclosure on the property. With the 100% financing deals, the 20% financing for the second mortgage carried a much higher interest rate.
 
NanoWest / IT Guy,





Back home this is what we call buying a house on contract or a version of it. It was practiced regularly in the Midwest b/c people would live in their homes until they died. At that point, and god rest their soles, so the family members were not stuck with the bill you would see alot of houses bought on contract very similar to the above.





IT Guy,


As for saving up for a home I am in the same boat. I went to a very good Midwestern University, worked for the world's most admired company, then moved to the land where everyone wants to live....that was a pun. Now my g/f and I are putting away lotsa money a month, can go on any vacation we want, and the best thing above all is that we budge on how much we want to save vs how much we can afford for a nice dinner. Anyways, you are in good company and we will soon be the guys pointing the fingers at everyone.
 
I was a regular anonymous reader of IHB and these forums, just registered after reading this because well I'm a 24 year old computer engineer living in Irvine. I figured most of these people were much older/wiser than me so I'd just anonymously read their sage advice but seems like there's people closer to my age :)





My biggest short-term (or long term depending on how this housing bubble places out) is to buy a SFR. No condos or townhouses or any of that crap, but a SFR with a nice lot for my dog to run around, no shared walls where I can hear my neighbors all the time, etc.





What makes the housing bubble worse is that IAC is a pain in the ass to work with also. While still significantly cheaper than buying a house, their rents aren't very competitive because well, there's not much competition for them here in Irvine.





Like you however, I never took out a loan or have any debts in my life, every I bought/paid was in full. No CC debts, perfect finance record, went thru college without ever taking a loan but depending on summer internships and jobs to pay tuition, buying cars that I can afford with cash instead of taking loans for flashy cars that go fast. I love saving and I save 50-60% of my aftertax/401k contribution earnings each month but make it a rule to treat myself and my gf once a week and being very thrifty the rest of the week. Been working only a little over 2 years because that's when I graduated from college and saved up a decent sized cash pile. Despite this, like most of you guys, I sit and wait and wait for this madness to end so I can buy a nice home. Sometimes I wonder if all this financial discipline is paying off and its so hard being patient...





For instance I have a friend who's my age graduated same time as I did, makes less than I do, doesn't save ANYTHING, spends way more than I do, and yet owns a 4 bedroom house in Irvine he bought 1 year ago on an exotic loan and it just looks unfair. I mean sure I read IHB and keep telling myself wait a few years and we'll see who has the better life, but the way the housing market still prices owning an "apartment" (aka condo) and paying 500k while still having to pay $1000 a month in HOA and all that crap, it just doesn't seem to adhering to reality and rewarding the people who diligently save and make the supposed right decisions. Like when my friend bought that house I told myself and from reading this board, just wait until next year, house prices will collapse and I will buy his house for half the price, but instead all we get is a "rollback" to the price he paid for. While he pays his stupid interest only loan on his 4 bedroom box, I'm still here living in a 800 sq ft overprice IAC apartment "box" that I share with another person as well as my girlfriend just because I don't want to spend 4 digits a month just to rent. All this for trying to do what my friend is already doing...





It's just so stupid sometimes... I really can't wait until reality comes back :(
 
<p>I think you guys in your 20s who have your discipline and your saving plans will reap the most benefit from all this. You will have the 20% when the time comes and you will be young enough to enjoy it the longest. Older folks may have a larger 20% but who wouldn't trade some cash for some youth any day? I was kind of in your shoes 10 years ago, watching every penny and trying to invest everything I could. The difference was I had to make a decision on whether to buy in earlier on in the bubble (when it was still possible) or keep renting. I was tired of 5 years of sharing walls, so my gf and I bought a house. We bought real cheap so we could put down our 20% and still have some seed money left over for the next place we get. We're waiting for reality just as you are. My point is that the saving and planning does pay off, but you need to stay disciplined because it does take time. A single lapse of judgement or moment of impatience can set you back (buying that toy you've always wanted), and they're psychologically hard to recover from. I'm not quite as obsessed with every dime like I usd to be but I still brown-bag it every day, probably the only person my age at work to do so. A really big factor is that I'm truly blessed to have found a woman who not only makes about what I do but also shares my financial thoughts and goals. </p>
 
Irvineperson,



It sounds like you are doing geat on your finance. Just couple suggestions for you consider:

a. You said your biggest short term need is a SFP. Given the fact you are 24 years, I am not sure you should putting buying a SFP as your priority unless you are very much for sure you want to live in this area for a long long time. Since you are a computer engineer, and job and promotion will likely take you somewhere else. Having a home will make you less mobile. Selling a home is general a headache, and takes time.



b. If you really really want to buy a home, I will buy something smaller, and less costly (i.e. two bedroom townhome) so you can lease it out if you move, and tie down less cash.



c. Enjoy life, go travel a bit ( sounds you can afford it) and see around the world. I regretted not traveling as much as possible before we had kids. My work takes me to places all over the world now, but I can never enjoy it given the schedule, presentation, etc. Also, I can never just leave my wife and boys at home on weekends, and being a tourist in London, NYC, or Vancouver. The thought of that makes me feel guilty.



Good luck.
 
<em>"For instance I have a friend who's my age graduated same time as I did, makes less than I do, doesn't save ANYTHING, spends way more than I do, and yet owns a 4 bedroom house in Irvine he bought 1 year ago on an exotic loan and it just looks unfair."</em>





Do any of you believe in Karma?





“For every event that occurs, there will follow another event whose existence was caused by the first, and this second event will be pleasant or unpleasant according as its cause was skillful or unskillful.”





Do you think the actions of the overextended, neg-am using spendthrift is particularly skillful? This behavior cannot be rewarded unless all the laws of financial prudence have been permanently set aside.





I think Daedalus is right. Those of you in your 20s who did not move out of state and saved your money should be the biggest beneficiaries of the collapse in housing prices.
 
<p>I think that you will find that the age of the people here vary and you might be surprised at the ages of many here. </p>

<p>As someone who is only a little bit older but someone who bought their house in their mid-20s I offer you this advice. If you have not traveled to Europe and that is something you have always wanted to do (like me) then do it. You won't be digging too much into your savings and I can only imagine that the experience would pay you back ten fold. I have no regrets for buying my house and due to the circumstances it has worked out for the best. But it has certainly restricted some of the freedom I could have had otherwise. I have been very fortunate to have traveled to many places in the states but my passport doesn't have any stamps on it and it may be a while before it does. </p>

<p>Now as for Karma yes I believe in Karma because I have been on both ends good and bad. I am also seeing that bad Karma coming back to haunt many who didn't think it would. A great book to read regardless of your belief in Karma is <a href="http://www.amazon.com/Zen-Art-Motorcycle-Maintenance-Inquiry/dp/0060589469/">Zen and The Art of Motorcycle Maintenance</a>. It's been a while since I have read it but in times like this and the situations above I believe it is appropriate.</p>
 
Oh and a big warm welcome to all you long time lurkers! You have all come here to learn as we all have and just by posting your frustrations you have already contributed. So feel free to contribute some more.
 
I agree with graph, I too bought in my mid-20's, but traveled a lot for work, and still do travel for work. The great thing about being young and single is mobility. Leave for weeks (if you enough vac time banked) and travel, visit friends, etc. I travel a lot for work and was able to take side trips to Europe, visit family in New York, and visit old high school friends who moved out of state. Once you settle down with a house and family, you've essentially rooted yourself. Not saying that's a bad thing, but take advantage of that mobility, while you can.

<p>

Once the family comes, you can't easily backpack it through Europe with 2 kids in tow. I too wished I could have traveled more extensively. However, the time will come when my kids are older and we will be able to take trips to Europe and Asia. I hope they will be able to appreciate and immersive themselves in other cultures, foods, lifestyles, and traditions.
 
<p>Priced_Out_IT_Guy,</p>

<p>I was single and bought my first condo in my mid 20's for an equivalent of $550K and with your comparable income, perhaps a little less. The interest rate that I had was more like 11%. So I must say it was even crazier at my time. Many of my friends thought I was crazy to buy. I just did not want to deal with renting any longer.</p>

<p>How I did it? Quit 401-K contribution, took in 1 roomate, and learned how to cook, and always asked for promotions. I only had to suffer for 5 year.</p>

<p>IrvinePerson,</p>

<p>Your friend who bought recognized the opportunity of easy credit and took it. I bet his interest rate is lower than now. Opportunity do come and go.</p>

<p> </p>
 
I do take vacations. I visited my hometown in Chicago on one trip and my old high school buddies who moved and is working in NYC and spent a week exploring the east coast of america, going down from NYC to philly to washington DC for another trip. I already have a vacation planned out, going to Hawaii during christmas season. I'm also planning on going to Europe for the first time sometime in 2008. That should be fun. It doesn't cost that much to take a vacation if you plan it right. Most of my savings come from day-to-day discipline and not because I refuse to give myself any fun.





I don't like townhomes or condos. Right now as we speak my neighbor downstairs to my apartment is smoking in his patio and the smoke is traveling up to my apartment and making me nauseous. Yes I can complain to IAC and blah blah blah, but the point is that buying a condo or townhome doesn't solve the problem that I like my own box and yard separate from the people around me. While it's true that buying a home means you need to be set in the area for a while, I have no problem with that. Don't really want to move out of California, have a job that I really like (in the computer gaming industry hehe), and the other really good area for software engineering is in northern california which also has WTF prices but luckily my parents live there so I can crash there at least ;P
 
IMO, 401K for the first five years are extremely important, they have five years of gains that will compound over the rest of your working years. Don't underestimate how $10,000 pre-tax dollars each year over five years ($50,000) and see how that grows over 30, compare that to 35 years. it's nearly 100K difference or more if invested in growth type of investmentts. Of course that 10K is pretax, so it's only more like $7K of net earnings. I'm not even counting your employer match which would only grow even more. Plus that 10K reduction in gross could potentially lower your over tax bracket during that year. IMO, saving for a home is a priority, but I take long-term retirement as a higher priority.
 
"<em>Whereas before I was depressed about real estate, now I'm excited because I know its possible to own a home if I'm <strong>patient</strong>! Every dollar I save gets me that much closer to my goal!</em>" - Priced_Out_IT_Guy


Thanks for sharing your experiences with the community here. As a 20something myself in the same boat, it's good to see I'm not alone. As hard as it seems, patience (and the cash savings haha) will be our best friend.





"<em>I think that you will find that the age of the people here vary and you might be surprised at the ages of many here.</em>" - graphix


I too had the assumption that the majority of the readers on this forum were older, but perhaps I'm wrong. Either way, I think everyone who contributes to this community (bearish or not) should deserve props.





"<em>I think Daedalus is right. Those of you in your 20s who did not move out of state and saved your money should be the biggest beneficiaries of the collapse in housing prices.</em>" - IR


Thanks to Daedalus and IR for giving me yet another reason to be diligent and patient in my savings goal. I admit sometimes it's difficult to keep focused when it seems like there is no hope in sight, but coming to IHB on a daily basis helps keep me going. I will gladly brown-bag it everyday as I have been since I started working for another few years if that's what it takes.





"<em>IMO, saving for a home is a priority, but I take long-term retirement as a higher priority.</em>" - Bubblegum


Great point. If being able to "afford" that SFR means having to dip into the 401k or IRA, then it's not really affordable. The way I look at it, true affordability includes a retirement plan, 4-6months emergency cash and a small vacation budget. If I have to sacrifice or borrow from any of those things, then I'm not ready to make that offer.





As for the comments regarding going on vacations while still young and free from mortgage/kids, I find it somewhat hard to do. Sure it's do-able, but spending a few thousand dollars on a Europe trip (which I'd LOVE to do) seems out of place during a time when I'm trying to stash as much cash as possible for that 20%+ downpayment. Then again, the ones who have "been there and done that" have experience and makes me think again. Perhaps I should head over to travelocity and replace those weekend getaways for a smashing trip to the Old World!







 
"I too had the assumption that the majority of the readers on this forum were older, but perhaps I'm wrong. Either way, I think everyone who contributes to this community (bearish or not) should deserve props."





Strange, I assumed the opposite, that since the majority of readers on the forum seemed to be renters, that the average age would be younger. That, and also the fact that it seemed to me unlikely that older people would be spending much time reading or posting on a forum of a blog.
 
<em>"Strange, I assumed the opposite, that since the majority of readers on the forum seemed to be renters, that the average age would be younger. That, and also the fact that it seemed to me unlikely that older people would be spending much time reading or posting on a forum of a blog."</em>





I have found this misconception to be most prevalent. I remember one poster early on trying to undermine the credibility the analysis posts saying those of us who write for the blog are all 20-something bitter renters who have never owned and have no idea what we are talking about. The truth is, we are all over 30 (or 40), and we have all either owned in the past or own currently.





I am also struck by the high education levels of those who post here. It is not a huge surprise given Irvine's demographics, but I have never been involved in an on-line community that is so diverse, and so well educated.
 
Since I do this for a living I have to draw conclusion from my data. Stereotyping and assumption are often needed to present as an executive conclusion to my clients who only can spare me 10 minutes to listen to my 1,000 hours research. I have a pretty good idea that you are right regarding your members. It would be interesting now to go just a step further to quiz our regular members here to guess at the very least members' sex, race, age, occupation, marital status and more like the car that they drive.
 
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