“Where are we going to come up with this down payment? Even with the money that we make, it’s impossible to come up with 20%,” Oklobdzija says. “People don’t just have $100,000 in cash just kind of kicking it.”
That’s not the core problem, really. Plug in the numbers for a $600k mortgage with $100k downpayment in California, and add the $1k HOA fee mentioned in the article. It comes out to $5200/mo, including property tax. This is excluding maintenance.
For a property that is quite likely not even that much better than renting. (Super market dependent — in Seattle anyways, $600k doesn’t get you even a “starter” home.)
It just doesn’t make financial sense unless the time scale is fairly long, with interest rates as high as they are.
I make a fair amount, as do my peers. I don’t find it hard to save (though student loans can require a lot of cash flow). I can live very comfortably, but that lifestyle is peanuts to what it takes to afford a home. Going to some concerts, dining out, small trips — that’s peanuts compared to the cost of ownership.
As far as I can tell, the only way for the finances to make sense in a HCOL area is 1. come into a lot of capital (stock cashout, inheritance, etc) or 2. move very far away (possibly loosing that nice job). Or 3, make a lot of other lifestyle sacrifices while still also having a well-paying job. (Edit: and I mean way more than cutting that daily coffee or yearly vacation.)
And that’s not even counting what it costs to have kids!
A _lot_ of people just don't understand saving as a concept.
You can see it in the way that people think about retirement savings. They don't think about the basic premise of - right, I need 30 grand a year for 20 years, which means I need about 600k, and then I'll invest it and hope I can match inflation.
It's super common instead for people to think - okay, I'll put x% or x a month into retirement savings, based on thinking "this is sort of how much I guess I want to afford to put in", rather than "this is going to result in my desired outcome".
These numbers seem optimistic, in that inflation probably makes them higher and there’s no discussion of medical insurance unless it’s folded into take home. If one assumes a monthly budget of 6k, this leaves 60-70k. Assuming saving for retirement > saving for house, that could consume as much as 30k (15% of income). Can’t rent retirement. Way less cash to save from.
It's doubly weird when I make 1/3rd of that I yet I actually do have a 50k emergency budget just "kicking about". And that's after dumping a thousand or two into retirement every month and funding a DoorDash addiction
If they are looking at $600k places thats less than 3x their gross income.
Where I live (New Zealand) a place would be 4-5x their joint income.
Certainly affordable.
On the other hand they might be looking at what they pay in rent vs what they would pay for a better place. They mention $1000/month from HOA fees. It might be a case they they are just better off renting.
Decades ago when I lived in the states I was told that most places will finance 2.5x couple income for a house. In California, they would finance 4x. So, this would get them a max of 880k if these rules of thumb still hold. What can one get for that price in nicer areas of LA? What are the current rules for estimating house affordability there?
That's not far off. Usually the DTI limit is somewhere between 36% and 45%. So 759,826 to 952,309 for your max mortgage. Assuming you spend that full $952 and pop a $200k down payment on top, that makes for well, $1.2mil.
In my neighborhood, most 3/2 houses are $1.5mil. There are things under that amount that are toootally fine. But your definition of "fine" and someone else's? That varies.
“Where are we going to come up with this down payment? Even with the money that we make, it’s impossible to come up with 20%,” Oklobdzija says. “People don’t just have $100,000 in cash just kind of kicking it.”
Pretax income: $225k (from article)
Take home pay: $147k
Rent: $29k (from article)
Utilities, food, transportation: $18k (my estimate)
Remainder: $100,000/yr
There's your down payment. Even if they burn an extra $30k/yr on other things, they should be able to save 100k every 18 months.