What the bubble?!?

[Ready2Downsize]

I know you can get SOMETHING.......... in this case a 20 year old 3 bedroom house a little over 1700 square feet on a lot less than 5000 square feet.

You can also buy a 50 year old 4 bedroom house in Fountain Valley on a 7200 square foot lot and you could even add a granny unit on that house and rent it out...... no mello, no HOA.

Or you could move down to Westminster and get an older house.

 

[daedalus]

What's the general rule of thumb?  If your annual household income is $200,000, you should be able to afford a $600,000 home, right?

I know it's very general and DTI and stuff like that come into play, but isn't it something like 3x your annual income?

That's the rule of the thumb for the loan amount.  Throw in a 40% down payment and you can step into a $1M home easy.  A bigger issue is that it's a linear solution for a non-linear problem.  What makes sense when interest rates are 8% or 12% does not necessarily make sense when they're 3% or 4%.  It's more important to look at total monthly expenditures relative to income (e.g, front end and back end DTI).

 

[paperboyNC]

I think the new Debt-to-income limits are around 45%. 200K/yr = $16,677/mo.  45% = $7500. If you are spending $1000/mo on other debt, you have $6500/mo left for a home. At current interest rates your payment breakdown is something like this:

0.35% = monthly mortgage payment (4.25% APR) with 30% down
0.17% = monthly property tax (2.0% / YR)
0.02% = HOA / Insurance
-------------------
0.69% total

That means you can afford a $1,200,000 home with 30% down and your monthly payments would be:

$4142 - mortgage
$2000 - property tax
$150 - HOA
$208 - Insurance
******************

Total

And this is fairly aggressive. Bankrate.com claims a DTI ratio max of 36%:http://www.bankrate.com/finance/mortgages/how-much-house-can-you-buy--1.aspx

When I got my mortgage last year they said I could go up to 55% I think which seems to high since taxes are at least 20% which would only leave me with 25% of income after debt payment.

 

[freedomcm]

hah, now show us how to live on 55% of gross, with taxes, child care, insurance, cars, food, etc

I think the new Debt-to-income limits are around 45%. 200K/yr = $16,677/mo.  45% = $7500. If you are spending $1000/mo on other debt, you have $6500/mo left for a home. At current interest rates your payment breakdown is something like this:

0.35% = monthly mortgage payment (4.25% APR) with 30% down
0.17% = monthly property tax (2.0% / YR)
0.02% = HOA / Insurance
-------------------
0.69% total

That means you can afford a $1,200,000 home with 30% down and your monthly payments would be:

$4142 - mortgage
$2000 - property tax
$150 - HOA
$208 - Insurance
******************

Total

And this is fairly aggressive. Bankrate.com claims a DTI ratio max of 36%:http://www.bankrate.com/finance/mortgages/how-much-house-can-you-buy--1.aspx

When I got my mortgage last year they said I could go up to 55% I think which seems to high since taxes are at least 20% which would only leave me with 25% of income after debt payment.

 

[nosuchreality]

I would say the mean (and average) is higher only because of a large student, foreign and elderly population that skews the numbers lower.

If students are living in a house, what it the reported income for that house? Or a family of a foreign businessman who stays abroad?

So nsr, I'm not sure but are you saying that the current prices in Irvine are fundamentally/economically supported?

I'm saying the following.

Since 2006, Irvine's population has grown, they've added 2930 households with incomes over $200K.

Since 2005, Irvine has build and sold 137 SFRs on lots 6500 sf or larger.  456 if you go up to $3 million and down to a 4500 sf lot.

2930 new households with incomes over $200K > 456 houses.

The above fundamental is basically outweighing every other fundamental.

It carries over into the basics counts too.  Families are the primary owners of the houses.  For families, nearly 1 in 5 has in income over $200K.  Now look at the new builds and past builds.  IS 1 in 5 the kind of ideal house they want?

 

[Ready2Downsize]

You are assuming they want a home with a lot over 6500 square feet.

We have an income that high and specifically want a smaller lot. We're tired of the maintenance.

There are some pretty high priced condos with much less than that lot size.

 

[socal78]

Iho, I'm just curious if you have zeroed in your search to a particular tract or even village which by now you know for certain you will buy in. Or is the answer as unsure today as it was five years ago??

I prefer the older hoods because of the multiple first floor living spaces (living/dining/nook/family/br/den down) but have been looking at certain new ones (some of the floorplans have a flex space or additional dining room).

I would still prefer to be in the southern part of Irvine but homes there are about $100-200k more than the same homes in northern Irvine (3CWGs for example).

Uh, I'll take that as a "No."

 

[Ready2Downsize]

Big difference between buying a $600,000 home and having a $600,000 mortgage.

 

[FranchisePlr]

What's the general rule of thumb?  If your annual household income is $200,000, you should be able to afford a $600,000 home, right?

I know it's very general and DTI and stuff like that come into play, but isn't it something like 3x your annual income?

Personally, I would say you are looking for trouble if you were to take out a mortgage greater than 2.5 times your gross household income.

Its better to save up and buy something cheaper or to look somewhere more affordable.

For folks considering that, why be so highly leveraged?

Then who could actually affford a $800,000 home in Irvine?  20% down is $160,000 and you would have a $640,000 loan amount.  I highly doubt the average annual income for someone looking to buy is $256,000 and that would be a starter home in Pavilion Park and a starter detached in Cypress Village or a starter in Laguna Altura.

Add in a Montessori, 1-2 car payments (if you don't have one, I guess your driving a paid off 2007 Bmw X5 or paid cash for 2012 Camry), a couple small credit cards.

I guess everyone will be close to 45% dti with a 30 year fixed at 4.25%.

 

[bones]

.

 

[irvinehomeowner]

It's "The Legend of the FCB".

 

[FranchisePlr]

What's the general rule of thumb?  If your annual household income is $200,000, you should be able to afford a $600,000 home, right?

I know it's very general and DTI and stuff like that come into play, but isn't it something like 3x your annual income?

Personally, I would say you are looking for trouble if you were to take out a mortgage greater than 2.5 times your gross household income.

Its better to save up and buy something cheaper or to look somewhere more affordable.

For folks considering that, why be so highly leveraged?

Then who could actually affford a $800,000 home in Irvine?  20% down is $160,000 and you would have a $640,000 loan amount.  I highly doubt the average annual income for someone looking to buy is $256,000 and that would be a starter home in Pavilion Park and a starter detached in Cypress Village or a starter in Laguna Altura.

Add in a Montessori, 1-2 car payments (if you don't have one, I guess your driving a paid off 2007 Bmw X5 or paid cash for 2012 Camry), a couple small credit cards.

I guess everyone will be close to 45% dti with a 30 year fixed at 4.25%.

That's why I think everyone in Irvine who buys at these prices at this income level either gets help from their parents or they are move up buyers.  They have equity from their previous house + savings from the last X years  so it is more than 20% down.  Some may have a combination of both.

Why put more down?  $100,000 more down would only save you $491 a month and less interest tax deduction.  You could possibly get more if you hold and invest the money in the equity market and you would be more liquid.

You would need to only clear 3.28% on your money (taking tax deduction into play) to clear what you would have saved on putting in the home and getting the money stuck into the house.

 

[bones]

..

 

[FranchisePlr]

It's "The Legend of the FCB".

I spoke to Beachwood and Hawthorne sales reps and they said approx 30-40% of buyers were full cash. 

 

[paperboyNC]

It's "The Legend of the FCB".

I spoke to Beachwood and Hawthorne sales reps and they said approx 30-40% of buyers were full cash.

One of our friends is house shopping in the 1.5mm range and paying full cash. He is very Caucasian and his dad is buying him the house. He'd had trouble qualifying for a mortgage since neither he nor his wife work so full cash is the way to go.

Many cash buyers are not foreign.

 

[irvinehomeowner]

It's "The Legend of the FCB".

I spoke to Beachwood and Hawthorne sales reps and they said approx 30-40% of buyers were full cash.

One of our friends is house shopping in the 1.5mm range and paying full cash. He is very Caucasian and his dad is buying him the house. He'd had trouble qualifying for a mortgage since neither he nor his wife work so full cash is the way to go.

Many cash buyers are not foreign.

In Irvine, "many" does not equal "most".

Or so the Legend goes.

 

[Irvinecommuter]

It's "The Legend of the FCB".

I spoke to Beachwood and Hawthorne sales reps and they said approx 30-40% of buyers were full cash.

One of our friends is house shopping in the 1.5mm range and paying full cash. He is very Caucasian and his dad is buying him the house. He'd had trouble qualifying for a mortgage since neither he nor his wife work so full cash is the way to go.

Many cash buyers are not foreign.

In Irvine, "many" does not equal "most".

Or so the Legend goes.

Many cash buyers may not be foreign but I would venture to say that most FCBs in Irvine are.  Most non-foreign cash buyers are either looking for properties on the coasts or as investment in the IE/Central Valley.  Irvine is a magnet for foreign (Chinese/Indian) money.

 

[nosuchreality]

That's why I think everyone in Irvine who buys at these prices at this income level either gets help from their parents or they are move up buyers.  They have equity from their previous house + savings from the last X years  so it is more than 20% down.  Some may have a combination of both. 

The high DTI crushes the taxes you need to pay.  Build a sample budget, with a $800K loan on a $200K income at 4.5%. 

FICA takes about $11K.
Invest $35,000 in the 401Ks and you're down to $165K taxable income.
interest, property taxes, state taxes blows $65K+ off your taxable.  Take your exemptions and child credits and you're down to under $1000/month in Fed income tax.
State income takes another $500/month.
That leaves about $8000K $5000 a month for living, on top of the assume $1000 other "Debt" which hopefully covers the cars or your just spending too much.

Are we really saying you can't get by on $8000 $5000 SPENDABLE a month after mortgage and taxes?


While I wouldn't want to stretch that far, it's not unmanageable.  And while it's much more financial prudent to purchase a home below 3X your gross income, historically in SoCal, it's been 3.5x-4X and that was back in the day when mortgage rates were 8%+

 

[Ready2Downsize]

I think only a million of your primary residence is deductible.

Personally I like to sleep at night. I could put down more and owe less or I could invest the money I didn't put down in stocks......... which may and have gone down 20% in one day. Houses can do that too but not in one day at least. If I'm not overleveraged, at least I have a house to live in.

 

[nosuchreality]

^^^ Of course not, because according to the president - folks with a $250K or higher annual income are corporate jet owners.

Those netjet lease shares plus fuel are expensive.  You're talking $5-10K / hr.

And that's the rub in Irvine, at $250K, you're pretty average, probably not even in the top 10%.

And if you're a family, you're barely in the top quintile.