Considering New Home Purchase - Need Advice

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giltee_IHB

New member
Hey All,



I've appreciated having access to and then becoming a member of this community over the past months and weeks. With my wife and I about to make a purchase decision that could significantly change our lives, I would appreciate any input you care to offer, which I would use to consider every angle I can comprehend before making the decision today or tomorrow.



We are looking at an interior house in the Ciara development of VOC (Tustin, w/ Irvine School District). The house is a plan 2 (>4200 sq. ft., 3-car garage, downstairs master w/ bonus room and 2 bedrooms upstairs, 2 more bedrooms downstairs also, plenty of bathrooms). The price would be $1,239,000. It does not include a fridge, but it does have upgraded counters in the kitchen and master bath. Needs landscaping. I don't like so much that it's in between two other houses as opposed to being on a corner, but I could live with it.



Based on our current income (our employment is steady), we would have $600/mo. left over after making interest-only pmts. on a 3/1 Jumbo ARM (currently at 6%, though that might drop if the Fed drops rates again this month). Our annual bonuses are also steady, and we would use those to pay the property taxes each year and also pay off the HELOC we'd be taking out ($107,800) within 3 years. That would leave us with a mortgage of roughly 990K when the 3/1 expires.



We're not planning on having kids, so we're thinking we could stay in this house for a long time. $1,239,000 represent a price drop of $200,000 off of what they were originally asking (not even including the upgrades, which they claim have a value of >$100K).



How long do you think it would be after the market bottoms before this house got back up to what we will have paid for it? Not that we're thinking of this as an investment, but I'm thinking a house this size with a 3-car garage, even being wedged in between two other houses, has a better chance of retaining value (esp. purchased below what a majority of the people in the community probably paid for the same house) compared to, for example, a 3,000 sq. foot house priced at 1M. Thumbs up? Thumbs down?



Thx as always,

giltee
 
Sorry, forgot to mention we'd be putting down ~$140K (little over 10%). The loan would be interest only, but w/ the bonuses, the overpayments to the HELOC principal would amount to more than what we'd normally pay on a principal+interest loan. I'm not sure what the exact property tax amount is (or what insurance would cost, for that matter), but we should be able to manage that w/ the bonuses as well.
 
<p>$900K at bottom giltee IMO and back to your $1.2M price by around 2020 or so. </p>

<p>When your 3/1 is due to reset, you had better make sure you need to borrow less than $720K (80% LTV of 2011 $900K value) or you could very well be stuck in that ARM during a period of likely monster inflation...</p>
 
<p>As one DINK to another, I suggest waiting. </p>

<p>Not only are prices going to come down, but selection is going to get plentiful. </p>

<p>On a practical note, if you are planning on staying for a long time why bother with all the complicated financing? Why do you assume a HELOC will even be available when the news is full of stories about banks closing them out? If you are basing your estimates on things that are not a certainty, you are going to get into trouble. If you are truly thinking long-term, wait for the defaults to pass, pick a price point you can support on a single income, and shop until you find exactly what you want.</p>
 
3/1 arm? can you pay for it at full rate after the arm reset and still maintain a dti of 30%? if yes then i see no problem, if no then that is one huge gambling you are taking on.
 
giltee,





What you have described is a recipe for a lot of pain. 10% down, paying 10% off the peak, a 3/1 ARM, HELOC in 3 years? You have not detoxed from the kool aid yet.





1. Your 10% down will have evaporated by the end of 2008; actually, it is probably sooner because prices are down more than 10% in Irvine, so you are overpaying to begin with. Your equity will have evaporated by summer.





2. This is a very risky form of financing in this environment. Interest rates are very likely to rise, and they may rise substantially by 2011. If interest rates are higher, your payment at the time of refinancing will be higher, perhaps much higher. You are putting yourself into the dreaded ARM reset time bomb mortgage due to explode 3 years from now. Since you will almost certainly be underwater 3 years from now, you will not have sufficient equity to refinance (in fact you will have negative equity.) If you can't afford the new payment, you will lose the house.





3. A HELOC is a home equity line of credit. You will have no home equity, so you will not be given a home equity line of credit. If you are counting on <em>adding </em>to your debt, it is simply not going to happen.





If you buy this house with the plan you have formulated, you will experience a great deal of financial hardship. You will either end up in foreclosure, or you will suffer through years of burdensome debt service payments with no way out.
 
<p>glitee. .. sorry to be blunt but: ARE YOU KIDDING ME!!!!</p>

<p>$600 left? What are you going to do for food/transportation/entertainment? Cup of Noodles? </p>

<p>3/1 is not a good loan. Fed will have raise rates in a year or two to counter the rate cuts they have made in the last year or so. What are you going to do if the rates go up 1, 2 or maybe 3 percent? </p>

<p>You are making a lot of assumptions about your future. What if one of you get sick, lose your job, or bonuses get shaved down? </p>

<p>Ipop's estimate for recover sounds about right but I would call the bottom for that house at $800K to $850. My favorite Woodbury house (33 triple leaf) has gone from $1.75 to $1.35 million and still has not sold. That house has 5 bds and 4000 sq. feet and is in prime Irvine location. </p>

<p>My two cents: DO NOT BUY THE HOUSE.</p>
 
<p>Never thought of that... 4100sf in Woodbury just sold for $1.285M. It already had the yard.</p>

<p>There is no way a similarly sized Ciara unit should be worth over $1.2M as that development does not or will not ever hold a premium to Woodbury.</p>

<p>I do love that floorplan though. One of the best plans I have ever seen in Irvine IMO.</p>
 
<p><strong>glit</strong> - do you really mean that after making interest only mortgage payments you would only have $600 left each month? $600 for car payments, food, clothing, utilities, insurance, gasoline, vacations, movies, tv...everything? Does that seem reasonable to you? Are you seriously living on $600 a month now? That doesn't seem reasonable to me and we drive two complete junker cars less than 3 miles to work each day and don't have television and we spend less money than anyone I know on stuff like clothing and hair cuts. </p>

<p>Wow...are you serious? I keep thinking this can't be real...why would you want to live in a 1.2 million dollar house and only have $600 a month to live off of?</p>
 
Awesome ;D. Thanks so much for the quick responses w/ the hard facts. That's why this forum is so great. IrvCommunter, the $600 would be what's left over after all expenses.



I'm going to veto this house w/ my wife and opt for something more manageable. We're not looking for short-term investment, so 2020 for values to rebound is not too worrisome (nor is the fact that anything we buy will drop in value by up to $200k within the next few years). However, the interest-rate reset, esp. during the killer inflation, is worrisome. We could probably still manage it, but I'm not the kind of person who likes to squeak by.



To address some of the other comments: when I'm buying something, I agonize over the details while comparison shopping, so the more options there are on the market, the more excruciating it is for me to make a decision. I'd rather have a few acceptable options at a higher price than a bunch of acceptable options at a lower price. In other words, I like to feel I've made the right selection based on the options available, and the more options there are, the harder it is to feel that confidence. (Since I'm not looking at the house purchase as a short-term investment, I have to give more weight to the psychological factors.)



The 4200 sq. ft. factor was more about retaining value in the house over the long term. But it looks like the cost (financial and psychological for this particular house) will be too high to manage that. It's not that we need a ton of space, but after being squeezed into a 1700 sf townhouse the past few years, we're wanting a bonus room for a pool table and a secondary room for a big two-desk office (where we spend most of our time), without sacrificing on the size of the kitchen, family room, separate dining room...it adds up to wanting a good amount of sq. footage.



I think we're going to instead go for a 3,100 sf house in VOC (Tustin/Tustin school district) that will be basically done w/ what we're looking for on the interior. All we'd have to worry about would be the landscaping vs. the house I was considering above, which we'd either need to live in w/out the options we want, or pay a lot more over time for more options (plus the hassle of shopping for and installing them). The value-retention on this Tustin house will clearly be riskier, but that risk will be mitigated by the fact that we'll be able to afford it w/out problems regardless of the rate reset, and possibly qualify for a conforming loan if our bank is willing to give us a piggyback for 110K. I might have had the terminology wrong on HELOC vs. the piggyback home equity which I believe my credit union would still offer us.



We do need to move to this area for me to avoid the commute to work, and we need to be closer to the 405 than some of the Irvine areas allow. As for the buying vs. renting question, we expect to be in the house for 20 years, +/- 5 years, so for that amount of time, we'd prefer to avoid compromises on the home/options we want, and we're willing to gamble on the values over that period of time.
 
<p>$600 left over? What about retirement? Vacations?</p>

<p>Are you really willing to be house poor? What makes this house so special that you have to buy it now?</p>
 
<p>glitee. . </p>

<p>Thank you for your honesty and willingness to share your experience. I apologize if I sounded aggressive or mean, I wanted to get your attention. </p>

<p>$600 is still a small margin especially since you are going with a 3/1 arms I/O. I would do a 10/1 I/O but not a 3/1. </p>

<p>I never discourage anyone to buy a home. . . I discourage them from buy a house. The difference is you perception of the property at issue. My sense is that you want the 4200 sq ft place so as to avoid having to move one more time. But I think you will find a 3000 sq ft. house to have plenyt of space. Meanwhile, you can save up more for the future. </p>

<p>I would think over the 3000 sq ft. VOC property because it is in (Tustin). In my own view, I think that an "Irvine" house has about 10-15 percent greater value than a "Tustin" house. Speaking as an Asian, I know that the school district thing is huge . Maybe different in twenty years.</p>

<p>I work near the 405/55 and live in Woodbury. The commute is about 10-15 minutes but 2X that during rush hour. However, living in VOC v. Woodbury would save you about 5-10 minutes a day. When the 405 is busy, I just take Jamboree up to the 5 and down to Woodbury. I get to Woodbury about 5 or 10 minutes after passing VOC. </p>
 
Just want to reiterate that the $600 would be after all expenses. Our monthly-expense calculation (including cars, electricity, gas, even maid service, etc. etc.) is $2870. So after mortgage payments + HOA, we'd have $3470 (based on the house I was discussing in the original post), $2870 of which would go to the expenses I just mentioned, and $600 of which would be left over for being applied as we saw fit, whether toward principal, property taxes, gifts, or a money market account. Or ice cream, which is delicious but perhaps a bad investment due to the melty factor.
 
<p>gilt - Have you consider an alternative such as this?</p>

<p><a href="http://www.redfin.com/stingray/do/printable-listing?listing-id=1514454">http://www.redfin.com/stingray/do/printable-listing?listing-id=1514454</a></p>

<p>You might be able to pick it up for $300/sf or even less. Pop $50-100K into it and it would be very nice inside...</p>

<p>The mello roos / bond are only $3K per year. That would be $400/month less than a 3000sf VoC place.</p>

<p>It would hold up in terms of value much better than VoC Tustin.</p>
 
IrvCommuter: that's a good call on the 4200 sq. ft. property being to avoid having/wanting to move anytime in the near future. I'm thinking the 3,000 sf house will be enough, though the room we're selecting for the office will be too small. I've resigned myself to the fact that the shorter commute and the overall bigger house will make me not care as much about the size of the office. I would have been willing to make do in our Fullerton townhouse, which is an awesome corner unit w/ great views and layout, but the 1-hour total commute is messing with my energy levels, thereby ruining my after-work at-home productivity. And we feel the time is now after having had our townhouse on the market for about a month and having received what we'd consider an acceptable offer in the current market. Rather go with the offer in hand than take a chance on a better offer coming along and be stuck in Fullerton for much longer if it doesn't (considering we've all essentially agreed that the market will essentially be making the offers worse and worse until bottom).



IPO: yep, we looked at that one. I liked it quite a bit, but also recognized that it would need more work to meet what we're looking for than what we were wanting to invest. And the upkeep on the backyard (which is certainly very nice) would be higher than we could handle due to the fig and other fruit trees they have growing there. My wife liked it less, mainly because of certain aspects of the layout as well as for the reasons above. She didn't mind the fact that so much work would still need to go into the 4200 sf Ciara property because she liked the layout much more.
 
I think I'll bring that 7 Salvo Westpark property up to her once more, but I'm thinking having the Tustin VOC property exactly as we want it for roughly 150K less will probably be more attractive than having the greater potential resale value in the Westpark property.
 
I think you may be mistaken about resale in VOC versus Westpark. Any of the prime Irvine Villages will hold their value better than just about anything else. VOC is new, but it likely will not age well.
 
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