Confessions of a Zero-Down Lender
Rhonda Porter on 02 11, 2007
This is a two part (well so far I’m planning a second post…their could be more) series of a couple of clients (names changed to protect identities, of course!) who have purchased homes utilizing 100% financing. Both parties utilized similar programs but they wound up in entirely different situations.
Mr. and Mrs. Spender eagerly wanted to purchase a home. They were tired of renting and had two kids with one on the way. They didn’t have a lot of money in savings and their credit had a troubled past (some of it was medical and some was plain irresponsible). They live paycheck to paycheck but they are anticipating receiving raises and bonuses from their employer. Their credit report shows that they rely on their credit cards and you can see on their bank statements that they dine out a lot and spend their money on frivolous extras.
Based on their credit scores, I was able to provide them with an 80/20 from a sub-prime lender who does not verify where their funds are coming from for closing and would allow for the seller to pay up to 6% of the closing costs. I structured their preapproval with the seller paying all the closing costs. In fact, at funding Mr. and Mrs. Spender receive a check back for a majority of their earnest money.
Not long after closing, the Spenders discover that the gas heater in their home was defective (apparently this was missed on the home inspection?). It just so happened that the repair company they called to repair it had previously serviced it and informed the previous owners that it needed to be replaced. Mr. and Mrs. Spender decided to take their Seller to Small Claims Court and their Agent attended with them. I had asked them what the results were, here is their edited response:
“Yes we took them to court and even though we had all the documents showing that the (sellers) knew the furnace needed to be replaced and needed to be fixed the judge did not find that we had proved our case… so we got nothing.. (the Real Estate Agent) came with us and she was just as shocked… She too was amazed that all the paperwork we sign to protect us from buying a home with flaws, the (Sellers) even stated and had to initial that there was no problems with the heating system and even though we had documentation to show that they knew there were problems and didn’t disclose it… we got screwed to be honest…. They knew.. They didn’t care… and the judge just wanted to get out of there… It was a joke…”
One and a half years later, they were now contacting me to refinance their second mortgage, hoping their new home had appreciated enough to swing a new furnace and maybe pay off some debts…it’s winter and the furnace is not working at all. Yes, their home would appreciate for more…I could refinance the second mortgage…but with the amount of cash out they would need we would be at a very high interest rate. And their original 80/20 from when they purchased their home has a 2 year prepayment penalty (required by the lender, not as compensation to me, the loan originator). They would need to refinance their first mortgage in less than 6 months (many of the sub-prime 80/20s are 2-3 year fixed products with the same term for prepayment penalties and high adjustments after the fixed period is up). The Spenders need to be in a prime position to refinance after their fixed period and prepayment penalty is up.
With a refinance, if someone has a second mortgage that is not from purchasing a home, it is considered “cash-out” unless it is a purchase-money second. A cash-out refinance has higher rates than a “rate-term” refinance. The higher the loan to value (the less equity); the higher the interest rate will be. With only six months before their prepayment penalty (of six months interest) is over, and to be able to refinance out of their existing 2 year fixed product at a rate term rate versus a cash-out rate (a cash-out refinance at an 80% loan to value is 0.5% higher in fee; 97% LTV is 0.75% higher in fee, which is often factored into the interest rate) I advised Mr. and Mrs. Spender to wait. They still pushed to proceed. The rate was ugly that I was able to offer them (there is a loan for almost anybody) and thankfully, they decided to seek out help from family for the furnace.
Many times when “iffy buyers” buy with zero down to eeak into a home, they don’t consider the “what if’s”. It may not be a heater going out, it could be a leaky roof, the stove may go debunk, and they might just need new blinds. The fact is, even though zero down is available for many, it is not right for all.
But what if I would have turned them away from the beginning…having a hunch they may wind up in a pickle? Believe me, I advised them on how and what they would need to do with their credit and spending habits… I think some people cannot or will not change. And if I had not done their financing, I shudder to think what would have happened to Mr. and Mrs. Spender if they would have met up with an unscrupulous lender.
By the way, Mr. and Mrs. Spender wound up having family help them pay for the new furnace. And in a couple months, they will eligible to receive a “rate/term” interest rate vs. a “cash/out” rate when they need to refinance.
About the Author: Rhonda Porter
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Wow, and to think that this is an every day thing for American homeowners.
I was wondering if the spenders had a home inspection on purchase and also – are there loan programs that set aside monies as required savings, similar to PMI payments?
I know that it is sad to think of a program with built in counter measures, but there is a company owned by Citigroup that offers something like that although it is a tricky kind of package in my opinion .
I believe they did have a home inspection (this was almost two years ago) and the heater issue was either missed entirely, or the home inspector did not determine it to be in the shape it was, or the seller might have indicated that repairs were made. As the lender, we are not privy to the home inspection unless issues wind up on an addendum to the purchase and sale agreement.
Some of the lenders I work with require reserves (2-3 months of the proposed mortgage payments for savings) and some do not. In this case, these buyers did not have that. I work with over 80 different lenders and so I found a product that would suit them. This was a “sub-prime” loan and they were not “a paper” borrowers
Off your lending topic but as a solution for your Mr/Mrs Spender’s big problem: As a broker, we recommend for our cash poor buyers get a home warranty at closing (it’s cheap, usually
(not sure why that was truncated, but here’s essentially what I wrote)
…
I’ve found that the home warranties are not always great to rely on. And, in their case, they couldn’t afford anything out of pocket…not even $150 – $200.
Hey Rhonda…I think that was an excellent post.
I think that the bottom line was that these people chose to purchase a home at a time where they should have been concentrating on basically getting their finances in order before making the largest purchase of their life. Especially if you state that they couldn’t even afford $150-200 out of pocket after purchasing. But they had to have a home.
Lots of people don’t want to listen to the “what ifs” that you advise them on and sometimes some of those “what ifs” that should be considered have nothing to do with the home.
What if raises/bonuses are lower than expected due to whatever reason…who knows…they could be higher…but still…what if?
What if there is a major illness and one of the earners needs to stay home to either heal or care for another family member…an older parent perhaps?…what if?
there are some “what if’s” that can be addressed with a home inspection but we see what can happen with those types of “what if’s”…but in reality…if the size…or possible magnitude of ones personal “what if” might be…if it is a “what if” that is as small as a household appliance…then they are not ready to buy a house…period.
Excellent post. As a real estate agent I too have helped people on the 80/20 plan. As I have followed them over the last few years, for most it has been a good/great decision. For two that I can think of, it has been near disaster.
With each I sat down and tried to explain the costs of owning, the price of mismangement and expecting the unexpected. One family I can think of really took the advice to heart. Just two years out of bankruptcy at the time of the purchase they have paid off the 20 in only three years and are now working on the 80 at full tilt.
To me, our job is to advise, advise, advise. After that, it’s the consumers responsibility to follow through.
Thanks, Chris and EconE. I agree with both of you. Overall, most of my 80/20 clients have done well and I’m proud of them. It’s the few that have not been successful (usually of their own doing, not from circumstance) that can really make me feel disappointed.
There should be a class where buyers with credit scores under x and with less than y in savings, need to attend. Not just a 1-2 hour class, either….I’m thinking the class should be 1-2 hours a weekend for 1-3 months covering such topics as: (1) creating (and sticking to) a budget; (2) understanding credit; (3) how to avoid bankruptcy; and (4) why you don’t need a new flat panel tv. This should actually be taught in high school. Just my thoughts.
The 80/20’s work alot better when the appreciation rate is high. A friend of mine was barely able to hang onto his 100% financed house in 2004 when they discovered expensive undisclosed problems. Due to a high DTI ratio, they were financed at a subprime (from the looks of it) rate ~7.7%, but thanks to 20%appreciation were able to pull out enough $$$$$ to fix both major problems and pay off one of their car loans. Had the house only appreciated 10% or so – they’d have been forced to sell.
The were able to refinance a second time now that the home has appreciated around 65% and get out of the subprime loan – so they’re both driving brand new Lexuses. Quite a different outcome when the market is hot.
Bill, Zero down financing to get people into homes definately work in the right situations. Look at the wealth your friends have that they would not if they had continued renting. Thanks for your comment.
“There should be a class where buyers with credit scores under x and with less than y in savings, need to attend. Not just a 1-2 hour class, either….I’m thinking the class should be 1-2 hours a weekend for 1-3 months covering such topics as: (1) creating (and sticking to) a budget; (2) understanding credit; (3) how to avoid bankruptcy; and (4) why you don’t need a new flat panel tv.”
Absolutely.
“This should actually be taught in high school.”
BINGO!!!
and on to another quote
“The were able to refinance a second time now that the home has appreciated around 65% and get out of the subprime loan – so they’re both driving brand new Lexuses. Quite a different outcome when the market is hot.”
they started with a subprime loan…to me that is an indicator of their financial status at the time…probably wasn’t in tip top shape I would guess.
And now they are both driving brand new Lexuses? Was that from a cash out refi or did their financial situation (house appreciation aside) improve so drastically that they are *truly* able to afford those semi-expensive depreciating assets.
Didn’t we already come to the conclusion in the “Perennial Borrower” thread that using ones house as an ATM with cash out refinancing is not a financially prudent thing to do?
I wish your friends the best Bill.
EconE,
They are better off than if they were renting (as long as they don’t continue the ATM pattern with their home…then they could potentially wind up in a much worse situation).
Having a mortgage (assuming it’s paid on time) improves your credit score. Would you prefer Bill’s friends finance the Lexuses with Toyota or that they take equity of their home and be able to write the interest off? Honestly, I don’t like either scenario… his and hers Lexuses…just in time for Valentine’s Day.
I would be curious as to what they were driving before the Lexuses…and the question I would then ask myself would not be “where I might obtain my financing”…but rather…
1. “it is something that I really need to go into debt for regardless of interest rate?”
2. “Could I make do with what I am driving currently”
if the answers to both of the above were 1. Yes 2. No.
..and giving them the benefit of the doubt that they actually “needed” new vehicles as opposed to just “wanting” them…that would lead me to the third question I would ask myself.
3. Could I make do with a couple of Toyotas or do I need to satisfy my ego more with a pair of Lexi. (would that be the plural of Lexus…after all…Lexuses doesn’t seem quite right)…but anyhow…
What models did they get? Matching RX400h’s? Those are all the rage down here in L.A. right now.
Why would we want to spend our tax dollars for use in the classroom teaching children how to be financially sound citizens?
I would rather have my tax dollars be spent teaching kids how to read, write, and pass the minimum competency exams (Here in WA state we have the WASL test, which our children are not all passing)
I’m not following you guys; help me out:
Why would a consumer need a class before embarking on homeownership? Isn’t this what real estate agents and lenders are for: to help educate the consumer?
That’s like saying we should all be required to take a class before we go see our doctor or our lawyer.
The teachers have enough to do in the classroom. Instead, real estate and lending corporations can pay to educate the consumer out of their corporate profits, if they so choose.
I would think that first, corporations would pay to educate their own agents and loan originators.
I JUST finished a 4-hour class with a group of Realtors. They told me one of the biggest values they bring to the consumer is knowledge and education.
You can help educate consumers about the pros and cons of purchasing the luxury cars, but it’s up to the individual to make the final decision.
Besides, high school kids aren’t going to listen to us anyways. They’d be like, “shhhyeah, right, you sound like my mother. I am so, like, done with this financial class. Teach us how to make as much money as you do, drivin’ that lexus, teacher lady.”
Jillayne (If I only knew your middle name) Schlicke…you surprise me! Miss Teacher probably does not drive a Lexus! You would rather have tax dollars spent on how to pass the WASL (which does not guarantee that students who pass have learned anything functional except how to pass the WASL) than how to survive?
What ever happened to Home Ec? Or how about teaching interest rates with practical applications and repercussions (such as how long it will take to pay off that $500 purchase on a credit card with 18% interest making minimum paymets) in Math?
My point is that these lessons need to be taught earlier. By the time I see someone who wants to buy a home, if they don’t have basic budget skills, they usually all ready have some serious bad spending and credit usage habits. I do provide counseling and plenty of guidance for home buyers…but for some people, it just doesn’t matter. I love it when you do see success stories, and I do consider Bill’s friends a success compared to those who get into their home with the 80/20 interest only product and then they buy a new SUV or what ever the next month.
Parents should be teaching their kids survival economics as well. But what if the parents are the “Gotta-have-a-Lexus-and-a-flat-screen-tv-in-debt-to-our-eyeballs” examples? What are they teaching their kids?
Teaching this in high school (or EARLIER and continuing through high school) will create financially sound citizens. This will keep our economy healthy, reduce foreclosures and keep our credit card interest rates down by reducing the cost of credit overall.
When the real estate agents and lenders are talking to the buyer who just wants a home (and I don’t blame them–it is the American dream), they may be too emotional to really learn just prior to a transaction how to budget and change their spending habits.
Maybe your company could teach the 3 month course!
I’ve solved everything now!!!
Yes, the couple didn’t have great credit – The Mrs. had declared bankruptcyand initially Mr. financed the house in his name only. For the subprime re-fi, they needed her income, but it dropped their credit score. Leasing the new Lexuses lowered their monthly payment enough to get better DTI (VS paying their previous car loans). She’s in the mortgage industry so she saw her income go from 40 something to close to 70K during that time period as well, further helping the DTI ratio. Unfortunately, they’re still running up the credit cards each month. The appreciation really saved them.
She’s in the mortgage industry? If she’s paid commission and was only making 40k…and hoping to go to 70k…her income can easily go back to 40k. It wouldn’t be her fault (income) it could just be market conditions.
I wish your friends the best.
“Leasing the new Lexuses”
priceless.
‘nuf said.
I have always wanted to teach a very simple one hour class to high school kids regarding basic debt ratio and housing payment ratio issues.
Maybe they won’t listen. But when they go to buy a house and can’t because of the car payments and credit card debt, at least they won’t say, “Why didn’t anyone tell us this before we bought the cars and other stuff!”. They’ll say, oh yeah, that’s what that lady was trying to tell us back in high school.
I gave a speech to adults last year and none of them had heard of the basic front end/back end ratios. I was astounded. Maybe if there was a little list of % of gross handed out in high school, something would stick.
My sister in the Philly area teaches basic budgeting to low income community housing program groups and also at her church. She was even invited to the White House by President Bush, who was with her at a Community Housing project function and amazed at her efforts to teach budgeting and finance as a volunteer.
Do they learn? I don’t know. But I’m very proud of my kid sister, Nikki Holcroft, for never giving up and continuing to teach it year after year. She must see some results and value in her efforts.
P.S. My sister Nikki is in the lending field, was an underwriter, and refuses to work for top dollar and won’t give up her community housing program work. She has been solicited by top professionals at high dollar, but thinks working for the rich for more money. is boring
I have thougth about offering a class to my client’s teens (or any teen who would listen). I do believe this is the age where the learning should begin.
Do you have two sisters, Ardell?
I’m the oldest of two sisters. I have a sister, Nikki, as well. Both of my (younger) sisters are wholesale mortgage reps.
Maybe we should teach the agents, and have a class called, “When a Lender Letter is not “Good Enough” LOL
I am the middle of seven children, four sisters; two brothers.
I have two sisters, and I am in the middle. LOL.
Rhonda, I love it when you lecture me!
I am still of the opinion that requiring teachers teach kids about mortgage lending finance in school would be like requiring us to teach kids investment strategy before they invest in securities.
Instead, the concept to be taught in school is “responsibility.” If they are able to master this core concept, which usually starts to develop between grades 4 and 6. But now we’re talking about moral development. This virtuous character trait and others are already taught across the curiculum in our PUBLIC school district. My daughters already have the ability to do simple and basic school banking via a WAMU in-school program. Basic bugeting and planning is already being taught through integrated social studies programs.
Mortgage finance basics are concepts are better left to the non-profit community service agencies funded by the for-profit’s REQUIRED contributions, or taxpayer voluntary contributions.
My main concern with the idea is using 1) my taxpayer dollars to fund what should be a corporate expense, and; 2) the limited amount of time teachers already have to teach other basic and more important concepts.
Always open to hearing your input sisters!
Did I lecture you? I’m sorry…it must be the “big sister” (I am the oldest of three) in me.
I’ve not seen the WaMu course, however the concept is great. Why not have them come back in High School to teach them about credit cards? That would be a second exposure for them to swoop up future clients who are just a few years from college (and from being offered tons of credit).
Right. Good idea! The WaMu program is done outside of classroom time. They offer “school banking” before school, and it’s staffed by WaMu and parent volunteers.
I am coming from a consumer viewpoint, and have a question about down payments/100% financing. I recently became a first-time homebuyer (with my partner). We used a 100% mortgage on a $350K house. It is truly 100%, not 80/20, and at a good rate with no PMI (through the WA House Key program – incidentally, I am surprised not to read more about that program here, given the number of times first-time buyers and their issues are mentioned). We can afford the payments, and have a savings account that could have provided a 5% down payment. However, that would have left us with relatively little in the way of liquid savings (other than retirement accounts). So we kept the bank account, which gives us security in case of repairs, etc. I feel like I am missing something when people say you “have to have” a down payment. If we have to sell under adverse circumstances (not enough appreciation to cover costs), yes we will have to write a check, but that is the same money that would have gone into the down payment in any case. Is it just a question of money management?
Seattle Veggie, I recently had a client, much like you, where they had 5% for a down payment which would drain their savings. After reviewing their finances, they opted for 100% financing with LPMI (lender paid mortgage insurance, which is financed into the rate, BTW pmi is now tax deductable if obtained in 2007 and if your income is less than 100k). Owning a home has costs associated with it. You no longer have a landlord to call if something is on the fritz. I’m glad you kept your savings. IMHO you’re not missing a thing!
That’s interesting that there are still people making less than $100K buying today. That’s an awfully low income threshold for working couples, I can’t imagine too many buyers in this area can qualify for that program.
There’s a lot of single people, including single parents and believe or not, there are many working couples that I see who do not have a combined income of $100,000.
Yes, “believe it or not” indeed. No kids, one 16-year-old car, no cell phones, very little desire for “toys.” With our consumption patterns, the mortgage actually doesn’t feel like a stretch.
Rhonda, are you seeing alot of single first time buyers financing 100%? It makes alot more sense for a couple to do it since there are 2 incomes to pay the (higher) mortgage.
I don’t personally know any single first time buyers that financed 100% LTV . My guess is they aren’t “single” so much as part of a couple where the partner has bad credit.
I’ll do a survey of my database to see…I’m getting ready to send the clients with 100% ltv’s a letter to check up on them (see my latest post http://www.raincityguide.com/2007/02/13/theres-no-love-for-the-subprime-borrower/ )
I’ll report back. I plan on doing this today.
Bill,
My experience matches Rhonda’s proposition. I bought zero down twice. First time as a single woman 6 months before the wedding ($500 total cash outlay FHA) and the second time 25 years later as a single divorced woman. In between many houses as a couple and family and not zero down.
Could be coincidence, but noting it because it’s a real life example that matches Rhonda’s proposition. Same with my ex. Only house he ever bought zero down was the one after the divorce as a single divorced man.
So looks like single first time buyer equals zero down, and newly single as in first time buying as single-divorced, can also equal zero down.
Like I said, could be coincidence. But proves out Rhonda’s proposition in my experience.
Ardell, I think there’s a big difference between the single first time buyer and the divorced Nth time buyer, if not just that after owning home(s) and saving for the last 25 years provides a cushion of equity that most single 20 and 30 year olds don’t have.
Also, I think we’re talking about 2 different kinds of “single” – there’s single=unmarried and single=does not have a partner that contributes. Were you expecting to get married to your husband when you bought your first house?
Hi Bill,
I’m talking (and I believe Ardell is too) about one person on the mortgage. Not two single people buying or mortgaging together.
Bill,
Not sure where you are going with that. I thought we were talking about “zero down equals single homebuyer moreso than zero down equals couple buying property”.
I was fully qualified to buy and own my first house without a partner. That I then chose to marry someone and move to a bigger home which was not zero down, doesn’t change the scenario. I bought it myself because “jury was still out” regarding couple. In hindsight, I should have stayed there by myself, maybe. But that’s not about financing issues.
Every house we bought as a couple (actually 6, I think) was not zero down. Every house we bought as single people (3), was zero down.
For whatever the reason, Rhonda appears to be correct.
I would like to add that not every 80/20 is subprime. Some people have outstanding credit and cash but just want to use their money elsewhere.
The only thing I’m getting at is that “single name on mortgage” doesn’t necessarily mean a “single person” is buying/paying the mortgage. It’s confusion on how the term was used, coupled with not personally knowing any single (as in alone) first time buyers that went 100% LTV on the purchase.
I guess in your case you do fall into that category, I just haven’t seen much of that going on.
I’d wager the majority of the single people earning less than $100K/yr taking out 100%LTV’s have a second wage earner in the household. If this isn’t the case, I’ll be surprised.
Be surprised, Bill!
It could be the demographics of the clientele I work with? 60% of my zero down loans are for single people (no partners on title or the mortgage). With my recent loans I’ve closed in this category (one person on title and mortgage), just 25% had another person at home (often times, they are not a wage-earner).
Rhonda, I am curious, but still not convinced. If “no partners on title or the mortgage” is the criteria for “single” how do you really know who is contributing to the payment?
My friend I mentioned above would have been considered “single” from that criteria, though he had been living with his SO for 7 years before they became a couple in the eyes of the mortgage industry!
Just to clarify – because of her past credit problems, having her participate in the initial purchase would have been a liability though she was paying the mortgage each month.
As far as a lender is concerned, that would be. We cannot factor in the SOs income if they are not on the mortgage. There are many programs where both borrowers can be on the mortgage as long as their credit scroe is at least mid 500s. With that said, some LOs might opt to not have the SO on the title just to make the transaction cleaner (or easier). And, if one party does qualify for a better program with the SO with the bad credit, then that could be the route to go.
Regardless of if there is a SO not on title and contributing to the payment, the person on the mortgage and title qualify alone (single).
I have very few regrets, one being that I rented for 8 years before buying property when I was young. In those days, a single woman buying property on her own was “suspect” on many levels.
I could well have afforded to buy the place I rented in 1975, but societal norms did not suggest I “should”. I remember my Uncle saying something like, you don’t want to make it so easy for some man to think he can just park his shoes under your bed, and call it his home
I think all of this talk about couples buy and singles don’t is bringing me back to the days when I clearly should have bought zero down vs. renting, in the mid seventies. I am very glad to hear that maybe single people “needing to be a couple to purchase” is hopefully a thing of the past.
I came in midstream. Why does Bill want people to be couples to purchase?
I bought my first house almost 20 years ago with my first husband (I’m on #2 now…and I plan on keeping him), FHA. Our family was shocked…how could we not put 20% down? It was the best thing we could have ever done. During those times, properties were appreciating like mad and we sold that house in one year and bought our second home. Divorced after our third home! Then I was buying my own condo.
Bill, the average household income in King County is less than 100k. Where are you from?
“Bill, the average household income in King County is less than 100k. Where are you from? ”
Snohomish county, but I’ve lived in King since college.
I don’t see how with the job growth figures touted lately that the average is going to stay that low. We should be seeing a major jump in incomes come 2007 stats. Realistically, if the average is under $100K people are going to be priced out. That just isn’t a high income anymore.
I don’t care if people couple, but the “official” government personal income statistics are either under stated or the income has been coming from other sources. Sure, alot of people work under the table for high pay in this area, but how long is it going to be before the county wide stats start to show how much incomes have risen?
Coupling was necessary during the lean years of this decade, but now that the job market has recovered the average should be moving up to make up for the 2000 slowdown.
I’m just surprised that mortgage applications are showing a trend towards “singles” buying before we’ve seen any big jump in personal income growth – so I suspect the mortgages are being paid by “partners” instead of individuals.
I can tell you from the loan applications that I take that are mostly King County, that the average income is below $100k.
Divorces could count for a lot of the “singles”, too.
Income averages in King and Snohomish County are in the $80k’s level, not $100K, and it will take time for them to go up to the six-figure level since people making over six-figures is about 5% of the population overall.
“I can tell you from the loan applications that I take that are mostly King County, that the average income is below $100k.”
Are you in the low end of the mortgage market? I can’t see how people with incomes that low are “average”.
Check out http://www.neighboroo.com/ for some quick demographics. Even Bellevue shows household incomes below $80k.
And, Money Magazine post Seattle’s median household income for 2006 at just over $70,000
http://money.cnn.com/magazines/moneymag/bplive/2006/snapshots/PL5363000.html
I work with a wide range of home buyers. Not just those who make over $100k per year.
Something isn’t right here. What price range are is your “average” buyer buying in? If Bellevue is average income is at $80K, and the average home price is around $600K, you’re in the low end of the mortgage market by a sizeable margin. From what you’ve posted, it appears you’re financing low end buyers. Even if you work with a “wide range of home buyers”, your personal stats seem to indicate that your range skews low.
Getting entry level buyers into homes is admirable, but that is not really representative of the overall market. If that is what you’re quoting as “average” please qualify your observations as such.
I still don’t believe the average (or median) income around Seattle or Bellevue is so low – those stats are old and we should be seeing a large jump in 2007.
Take a look around. $80K/yr in Bellevue is not alot of money. Do you personally know anyone that recently bought a home there and earns so little?
The BECU program for buyers with incomes of $70,000 or less is a great program and used a lot. First Tech had the same program with a slight stretch provision up to $80,000 until they ran out of funding last year. Lots of people used it.
Home may equal condo or townhome, but it’s still someone’s home. Many, many people in the Seattle Area buy a towhome or condo and then tradeup to single family using the equity as a downpayment.
There are still lots of condos on the Eastside for $250,000 or less. Plenty in Juanita. Many in Bellevue near Microsoft. They sell like hotcakes. Many to investors, but some to people who buy as principal residences.
Ardell, I’m glad you posted that. (I’ve been a BECU member for quite some time) I’m just wondering if people earning a median income of $70-$80K are scraping the bottom of the affordability barrel can really drive the market. If households in that low income bracket are only able to qualify for the cheapest of the cheap condos (Juanita?) who is going to come in and buy from them and allow them to trade up?
I don’t dount that it is happening, but I’d like to know why a trade up is a reasonable expectation from 2007-2010.
Income stats are typically shown for individual wages and not dual income homes so you are missing out on the possibility that an upper income couple combined makes from $120k to $200k easily. First time homebuyers make up roughly 40% of any single year of home sales so I’m not sure why you’re harranging Rhonda about it and making statements that come across as, frankly, a bit elitist. I work with plenty of single clients that make in the range of $60-80k and I consider them on the middle range of the income spectrum. If you have a dual-income client then you might get into the higher price points.
An interesting paper that covers income data to 2004 (released in 2006) is as follows: http://www.psrc.org/publications/pubs/trends/e4nov06.pdf
Incomes are no where near six-figure for the King County average. Those kinds of incomes are typically quite concentrated.
Thanks, Reba! Their are plenty of people who can afford $600k and more homes. They are not the one’s with the average income of $60-$80k.
Seattle Veggie-
How funny, I almost thought I made your initial post. I too am a first time homebuyer (with my partner) through the WSHFC House Key program. As if that weren’t enough, I am “Seattle Veggie” or something like it, on blogs. I did a double take.
I am so suprised how little is said about good programs like House Key. Our mortgage is not stretching us thin, but we would have never been able to buy where we did, when we did, without a program like this. I also appreciated how much “education” is required to qualify. The interest rates are excellent too, and are not typically “suicide” loans. I am glad to see someone else bringing this to the table.
Another Seattle Veggie…I had to do a double take, too! Our company will not do state bond programs (such as House Key) because of the recapture tax. Because if someone sells their home within 9 years (which is a very long time for home ownership these days) the recapture tax is 50% of the gain on the sale (in just 5 years, that could be a significant gain) or 6.25% of the original loan amount (which ever is less). With that said, the can be great programs as long as you plan on growing roots…I suppose a veggie could certainly do that.
Education delivered to Seattle Veggie at the point of purchase, by a non-profit, government-sponsored entity.
Seattle Veggie, I’m curious: do you think the concepts you and your partner learned in your program could be taught and retained by high schoolers?
Thanks for your insights!
Rhonda – The recapture tax has certain limits though – I have strong suspicions that we will not exceed its income level for any given year.
Jillayne – Not sure if you are asking me or the other Seattle Veggie, but I didn’t actually get too much out of the class. An interested high schooler could probably understand the concepts, but without a practical aspect (most high-schoolers are not thinking about buying a house, whereas most attendees of this seminar are considering an imminent purchase), I’m not sure it would be a useful exercise. At the point that we took it, we were several months into house-hunting and in an excellent relationship with our lender. I had also done a lot of reading on the House Key web site. One thing I was intensely disappointed in was the amount that the lenders (my own and the one who taught the seminar) knew about “targeted areas.” I ended up educating them about it. If you buy in a targeted area, which includes parts of Capitol Hill, the University District, and most of the south of the city, you don’t have to be a first-time buyer, and the house value limits and income limits on the program are relaxed.
Jillayne is trying to prove a point from earlier in this post regarding teaching high school students about basic living economics. I’m not sure what the House Key education would include, but my thoughts were to teach high school kids about credit, how interest accrues on a credit card, what happens when you write a check and you don’t have enough money in the bank…it wouldn’t necessarily be about how to buy home–but these topics would certainly influence it.
Veggies, what topics were covered in your class?
I’m all for good educations.
I’m all for good teachers.
To be a good teacher…one must also have a good education.
When I google my alma-mater…I read good things. When I google my parent’s alma-maters…I read even better things…I’m not surprised…they both went to Ivy League Universities.
I googled “University of Phoenix” last night.
I had a fun evening.
OMG, you guys!
I’m staying “down south” even if I have to plug away in my “Bottom of the barrel” 25K job as a “single” (divorced, with SO) mother *forever*! Down here in Thurston Co, we still have homes for under 200K!
We also happen to have freaks like me whose COMBINED income doesn’t scrape 50K!
But I “Have patience, will rent,” as the saying goes!
Even though my 14 year old station wagon cost less than a monthly payment on your brand new Lexus, I still have hope!!!
P.S. Budgets only work wonders when you have money to allot!