How does everyone afford a house?

[Qacer]

A good friend is wanting to buy a house. He makes about 65k/year. I told him that he should use various online calculators such as Fannie Mae's to find out how much he can afford. Out of curiosity, I typed it 65k into this calculator and just assumed certain values (~$900 for car, student loan, etc.) for the other fields. For a conventional loan, it shows that he can get a max loan of $136k and he needs about $30k for down payment & closing costs. This translates to about a $160k house.

I know for a fact that he doesn't have $30k because his broke @ss is still too cheap to buy me lunch even though I paid for his lunches back in school. Plus, he said so himself.

Anyway, I think a $160k house will probably get someone from Tampa an old tent located in the ghetto. Most of the decent houses being listed right now run for about $220k to $260k.

Now, I understand his question about how certain folks can afford a house. Some of the people that we hang out with do not make $65k/yr, but somehow, they were able to buy a decent house in a nice neighborhood.

What's the trick here?

I was going to suggest to him 100% financing with no down-payment thru Wachovia, but I haven't done enough reading to find out the cons.

 

[Joemonkey]

Move where housing costs are cheaper?

 

[radioouman]

100% financing. Either PMI, or 80/20 (or 90/10) loans.

Once the house appreciates and you have enough equity in it, sell it for another home and use the equity and the amount from appreciating to put 20% down on the next house.

 

[Scarpozzi]

The trick is that in 5-7 years their adjustable rate or interest-only mortgages are going to increase and they'll have to foreclose.

 

[spidey07]

The trick is to live below your salary and save like a freaking pack rat for 2-3 years. Then have 50K or so for a down payment.

 

[Demon-Xanth]

Step #1:
Don't get a car that requires a $900/mo payment.

Step #2: pay off the loans

I make MUCH less and can get a considerably higher mortgage comfortably. I'm watching the housing market fall and waiting.

 

[pontifex]

is he single or what? how can you not afford a house on 65k a year by yourself? furthermore, how do you have no money saved making that much?

 

[Qacer]

Originally posted by: radioouman
100% financing. Either PMI, or 80/20 (or 90/10) loans.

Once the house appreciates and you have enough equity in it, sell it for another home and use the equity and the amount from appreciating to put 20% down on the next house.

... Lots of people are saying that the housing slump is still on going. If 100% financing is like an ARM, wouldn't it be more riskier to assume that one can sell their house for at least 20% more than cost before higher interest rates kick in?

 

[meltdown75]

Originally posted by: spidey07
The trick is to live below your salary and save like a freaking pack rat for 2-3 years. Then have 50K or so for a down payment.

I agree and this is what both my spouse and I had to do for a 10% down payment and probably another 5-10% for associated costs and expenses.

Now we're DINKs and just chipping away at our mortgage... neither one of us lives too extravagantly these days but we are making some nice progress so far... almost 4 years now

We love our home!!

 

[Elbryn]

There really isnt a trick to it, tradiationally people in the past have put down downpayment of about 20% or more.
on a 220k house with a 20% downpayment that equates to a 176k mortage, thats about 1050 a month. on a 65k/year that is doable.
if you try to get a house without a bigger downpayment you'll need to pay more monthly unless you play arm tricks or 0 down tricks which are much more risky. all he has to do is get his finances in order, save for a few years then go out and do it.

 

[MiniDoom]

buy condo...wait...sell. buy townhouse.....wait.....sell. buy house.........profit.
I would never be able to afford the house im in now unless i did this. patience is key.

 

[Qacer]

Originally posted by: pontifex
is he single or what? how can you not afford a house on 65k a year by yourself? furthermore, how do you have no money saved making that much?

Single and fresh out of college by a couple months.

 

[dullard]

See this to partly answer your questions. It takes just 4 minutes to see, but it is well worth it.

Those $220k - $260k houses were well within reach of a $65k salary just a couple years back. That was one big way that those people afforded houses.

Also:
1) Mortgages that they can't afford but give initial terms that are deceivingly cheap.
2) Everyone does NOT have a house.
3) They learned to save. Anyone with $65k/year should be able to easilly buy lunch, and shouldn't be in the situation that your friend is in.

 

[maddogchen]

HA! try affording a house in California on 65k a year.

 

[davestar]

Originally posted by: Demon-Xanth
Step #1:
Don't get a car that requires a $900/mo payment.

he was adding up other expenses (including a car) to come to a total of $900/month

 

[EagleKeeper]

Unless he has loans for school; he should not have such payments.

He is/has been living high off the hog / beyond his means.

He needs to look carefully at where the money is going and determine what is most important.

 

[DougK62]

I've found that a lot of people that bitch about not being able to afford a house have way-high spoiled-brat expectations. You don't NEED that 4 bed/3 bath house with the 3 car garage. There are lots of nice smaller houses that are just completely off their radar.

 

[axelfox]

everyone can't afford a house.

 

[dullard]

Originally posted by: Qacer
Single and fresh out of college by a couple months.

So, his take home pay should be around $3,500/month. Even if he didn't scrimp much at all, he should be good at $2,000/month for rent, food, utilities, entertainment, etc.

Thus he has $1,500/month extra. In 20 months, he'd have his $30k downpayment. That is less than 2 years of saving. And you don't even need a downpayment to get a house. People used to save for a decade or more to afford a decent house. Waiting 20 months won't be a problem at all.

 

[Eeezee]

Originally posted by: pontifex
is he single or what? how can you not afford a house on 65k a year by yourself? furthermore, how do you have no money saved making that much?

I have to agree, 65k a year is a nice chunk of change.

Next year I'll be making 25k a year and I consider that a nice amount of money, considering I'll be a grad student and that's after tuition costs (department is covering it and other tuition fees). And that's in Orange County!

 

[Kelemvor]

The trick is to go talk to an actual Mortgage Specialist person and have them run the numbers. You don't need a down payment so that $30k is useless. You can get by for much less and even take out one loan to be the down payment and another loan for the actual mortgage.

It only takes a couple minutes to run the numbers but have someone do it that knows what they are doing.

My brother-in-law is a Mortgage Specialist and we've use him a number of times as have a ton of our friends. If you want, PM me and I'll give you his contact information and you can see what he can do for you.

 

[amdskip]

Live well within your means and save for the down payment. Personally I think its stupid wasting money on PMI and that if you can't put 20% down wait or find something cheaper.

 

[UDT89]

second job off the books.....thats how i did it.

 

[jdoggg12]

The answer is that many people who cant afford to, do it anyway. They take interest only payments and such.

House debt is ridiculous in this country, you should never take a loan if making an appreciable dent in it is not possible.

 

[bcterps]

If you have any car loans or credit card debt, you are most likely not ready to buy a house, unless you happen to live in a very affordable part of the country. Of course some parts of the country are incredibly expensive (NYC, Cali, DC area) and in that case you have to save even more, and it might not be worth buying property in that area at all.