S/O What is middle class?

[perditax]

Ok dumb question. I haven't bought a house since before the 2000s bust, and I no longer own that house (have been renting). I haven't wanted to buy due to indecision about whether I'm staying in my current state, but it's feeling increasingly dumb to rent.

I thought after the bust they got much more strict about down payments. But from this thread it seems not?

I have extremely good credit but had been assuming I'd need to save for a year or two for a down payment plus what I remember as being a ton of closing costs. Is this not the case? Meaning are people buying without a ton of up-front capital? I've only recently gotten into a good financial position so don't have a lot of reserves yet.

I wouldn't be borrowing more than about 1.5 times annual income, if that.

 

[Mackenzie Click-Mickelson]

Thanks, but we actually chose to do it. The job offer (and salary increase) was too good to turn down then (and would likely never come around again) and the job he had was not good enough to keep (with 0% raises a near certainty and making very little compared to peers in his chosen field). So, I knew in advance we'd lose money, but the worst part was actually the double payments, not the final loss. At least once it finally sold (and this was 2005, top of the market almost everywhere but where my house was), it's financial sink was done...

But if we'd have had 20% in, there would have been no worry and the choice to take the job would have been a no brainer. As it was, we lived REALLY tight those 6 months and then raided retirement savings to pay off the balance, and the mortgage situation was a major check in the minus column when we thought about taking/not taking the job.

I always say I'm the only one who sold in 2005 who actually lost money...

It's hard to turn down a really good opportunity...that's how my husband ended up working out of state for 13 1/2 months coming home for one or two days every two weeks. It's not like we said "yeah this is a great thing you being there be being here seeing each other for really short time period" but he had to do it at least at some point (though not for that long) in his career and there were some nice incentives given. It sounds like even with the obvious downsides for you guys you did what would have given you the best longer term outlook.

The downpayment we put down would have been equivalent to a house priced at $100,000 if putting 20% down. A house worth that little around here....is probably not going to be a house you want to live in..aka higher crime rates, less overall equity, part of a duplex (though it would be a low-end one), very tiny home, etc. That's not to say all homes priced at that amount is that way but that would be the bulk you would find. According to zillow the lowest priced home (not lot for sale, not foreclosure, not pre-forclosure, etc) in my city is $91,000 or $18,200 at 20%. That is for a 865 sq ft half of a duplex. The next one is $98,500 condo or $19,700 at 20%. Obviously though not all homes will show up on zillow just using it as an example and there are other cities around here for sure in my metro but just speaking in regards to the one I live in.

 

[Mackenzie Click-Mickelson]

Interesting how things are different in different parts of the country. In NYC you need 20% down, some bldgs require even more.

Yeah all places are going to be different that's for sure and I could absolutely see NYC being a 20% mandatory place. Like I mentioned though in my neighborhood 10% is preferred but they will take lower for sure and they don't have any sort of negative interaction if you put less than 10%. They never even mentioned "hey you've got 20% to put down......right??" The thing is this is my experience which is going to differ from someone else. Another new construction neighborhood may be different, though the developer of my neighborhood is basically the largest in town and the real estate company representing the developer still works closely with the developer. Individual to individual sale may be different though than someone in my position who was involved with the builder and the real estate company for the neighborhood and developer and the mortgage company.

 

[Mackenzie Click-Mickelson]

Ok dumb question. I haven't bought a house since before the 2000s bust, and I no longer own that house (have been renting). I haven't wanted to buy due to indecision about whether I'm staying in my current state, but it's feeling increasingly dumb to rent.

I thought after the bust they got much more strict about down payments. But from this thread it seems not?

I have extremely good credit but had been assuming I'd need to save for a year or two for a down payment plus what I remember as being a ton of closing costs. Is this not the case? Meaning are people buying without a ton of up-front capital? I've only recently gotten into a good financial position so don't have a lot of reserves yet.

I wouldn't be borrowing more than about 1.5 times annual income, if that.

At least from my own experience, so take it with a grain of salt, and that of others I know who have bought homes in the last 5 years there is still a focus on what you can put on a down payment but there is also a focus on personal finances.

Someone who puts a lot of money down but then has little extra money in their bank accounts or their take home paycheck isn't quite as high may have struggles to pay that monthly mortgage even if it is lower because they put 20% down. As mentioned before from Jan 2014 to Sep 2014 we had to provide to our mortgage company our monthly bank statements, pay stubs, and 401k statements, I should have mentioned any credit card statements too (though I just lumped that into bank statements personally). That was 9 months of showing solid continual financial health. Compare that to someone who may have only had a closing time period of 1 or 2 months...but again my situation was different as we were building a home. They weren't lenient in my situation, if they didn't think we could afford the home we were going to buy and continually afford the home we were going to buy they wouldn't have let us close. It wasn't a done deal til the closing costs check was deposited by the title company an hour after signing the paperwork and the keys were then given to us.

It's going to vary by area absolutely. You might consider just speaking with a mortgage specialist or getting in touch with a financial advisor in your area in you are in the beginning stages. Obviously from what you can see with other poster's responses my experience isn't considered common to others.

 

[tvguy]

Ok dumb question. I haven't bought a house since before the 2000s bust, and I no longer own that house (have been renting). I haven't wanted to buy due to indecision about whether I'm staying in my current state, but it's feeling increasingly dumb to rent.

I thought after the bust they got much more strict about down payments. But from this thread it seems not?

I have extremely good credit but had been assuming I'd need to save for a year or two for a down payment plus what I remember as being a ton of closing costs. Is this not the case? Meaning are people buying without a ton of up-front capital? I've only recently gotten into a good financial position so don't have a lot of reserves yet.

I wouldn't be borrowing more than about 1.5 times annual income, if that.

We apparently didn't learn anything after the 2008 bubble burst.
http://themortgagereports.com/22592...-buyers-making-smaller-mortgage-down-payments

 

[perditax]

We apparently didn't learn anything after the 2008 bubble burst.
http://themortgagereports.com/22592...-buyers-making-smaller-mortgage-down-payments

I promise not to destroy the economy.

 

[AquaDame]

Interesting how things are different in different parts of the country. In NYC you need 20% down, some bldgs require even more.

Are FHA loans not a thing in NYC?

Ok dumb question. I haven't bought a house since before the 2000s bust, and I no longer own that house (have been renting). I haven't wanted to buy due to indecision about whether I'm staying in my current state, but it's feeling increasingly dumb to rent.

I thought after the bust they got much more strict about down payments. But from this thread it seems not?

I have extremely good credit but had been assuming I'd need to save for a year or two for a down payment plus what I remember as being a ton of closing costs. Is this not the case? Meaning are people buying without a ton of up-front capital? I've only recently gotten into a good financial position so don't have a lot of reserves yet.

I wouldn't be borrowing more than about 1.5 times annual income, if that.

Depends on where you're buying and what the sellers are willing to accept/how "hot" your area is. Our house had three offers on it but ours was the most attractive for whatever reason. We did not have 20% down but I am very glad we did not wait. In the last four years housing has gone up ~100K here and most houses closer in than mine are gone within a month - many with cash offers over asking price. I don't think we'd get cash, but I have no fear of losing anything on it.

As long as we are tossing out old advice, never buy unless you'll stick around long enough to make a profit. If you're going to be moving on in less than 5 years or so, just keep saving to make your eventual mortgage lower.

 

[Jen and Ashwin]

Our financial advisor say 20% is fairly old school nowadays.

You have to look at your current situation to see if it is feasible to wait years in order to put 20% down. This is especially true for those who are renting. Our rent in 1 year when we lived in a rental house was $16,200 per year not including utility costs (granted renters insurance would significantly less than what homeowners insurance would be but still). So I could spend over $16,000 on renting a home where I'm not doing a whole lot for myself credit-wise or I could look into getting a home. Granted that was in a rental house versus an apartment but in an apartment the yearly rent would have been at least $8,500 (not including utility costs).

We put 5% down. In our neighborhood the norm from builders (as it is a new construction..oldest part is around 15-16 years) is 10% but they are more than willing to allow you to put 5% down. We didn't have a home sale to boost us either. Our neighborhood by the way has homes for sale in the mid-upper $300,000 to actually over $800,000 (though the upper range is usually $600,000+) so it's a nice neighborhood. I only mention that because even in a nice neighborhood they aren't expecting 20% down.

YMMV of course.

I could have put down as little as 5%. I choose to save up and put 20% down because I didn't want to pay PMI and I wanted to feel comfortable with my mortgage payment. I could also have qualified for a mortgage on a much more expensive home, but I choose not to over extend myself.

Am I missing something? I don't see any descriptions for each class in the website . I am also not sure when upper middle class didn't have to worry about money at all.

If you had a 20 million dollars inheritance, then you probably aren't as worried about money. That person is as equally upper class as I am according to that website, since it places anyone over a certain income into the upper class category.

 

[Jen and Ashwin]

Sorry but you don't really get to tell me that if saving for 20% is hard it's not a good place to buy for. That is rather rude tbh even if you say it's in your opinion. You are not my fiancial advisor. It was the builder who had the sayso on how little % they would accept;we had our house built. The mortgage company just needed approval from the real estate company representing the neighborhood and the builder's approval. Sooooooooo many people put 10% or less down here. Our builder even let us put half down and then pay half again in 4 months time not because of our individual situation but just because that's how they operate. FTR we didn't get a house as expensive as we were approved for.

Our friends put 3.5% down...you want to tell them it's not a good place to buy too? And thier house is less than half the price of ours.

Maybe we're just coming at it from different age groups/different experiences/different areas.

I won't have any problem building equity in our house.

The point the financial advisor was making is the old way of looking at save save save save save for years years years for that coveted 20% is old advice. YMMV of course.

ETA: a $160,000 house, which is what our rental house was priced at, would have been $32,000 at 20%. It's not all that often that someone has $32,000 in CASH to put down on a house especially a first time home buyer.

My home cost $214,000. I put 20% down, having saved $40,000 during my first two years of full time work and the rest coming from previous savings from college jobs. That is $42,800 + closing costs. I don't know what age group you are talking about, but I would never put down 3.5% on a house. You will be paying interest to the bank for a very, very long time before you build any kind of equity. You might think a 20% down payment is old school, but I see it as very smart. Since buying 5 years ago, my house has now appreciated to $280,000. I was lucky and bought in a very down market. I am nearing the point of having 50% equity in my home in just a little over 5 years. I wouldn't be there if I put 5% down. But it provides me with so much more financial security. Now I am working on having my loan paid off in 15 years instead of the 30 years that my mortgage runs. It will save me roughly $70,000 in interest payments over the life of my loan. I can think of a lot better uses for that money.

ETA: A lot of our desire to pay off our house sooner has been because of my in-laws financial situation. They bought a house 10 years ago. It has appreciated in value, but they have refinanced it several times and taken equity out. DH's dad is 60 years and at this point, there is no way he will ever be able to retire because he has this house payment that will probably never end. They have less equity in their house than we do in ours and it is a much more expensive home. DH and I want to get our house paid off by the time I am 43 (DH would be 38). It would allow us to be in a much better financial position to help his parents if we needed to do so. It would also allow us to have more options for ourselves, such as increasing retirement or college savings for kids. We are thinking very long term right now, but we feel that is what we need to do to ensure that we reach our goals of a secure retirement, paying for kids college and making sure DH's parents are cared for in their old age.

 

[erc]

I promise not to destroy the economy.

Hah. I would just be happy if they make sure whoever is getting low downpayment mortgages can actually afford the mortgage.

It still boggles my mind that there were so many people that just walked away from mortgages during the housing crash. They had nothing tied up in it so what was the incentive to not let it go into foreclosure? Most of the time they were not even living in these homes. Just crazy. And hopefully these people who walked away 10 years ago are not getting new mortgages now.

 

[perditax]

Hah. I would just be happy if they make sure whoever is getting low downpayment mortgages can actually afford the mortgage.

It still boggles my mind that there were so many people that just walked away from mortgages during the housing crash. They had nothing tied up in it so what was the incentive to not let it go into foreclosure? Most of the time they were not even living in these homes. Just crazy. And hopefully these people who walked away 10 years ago are not getting new mortgages now.

I lived in FL during the early/mid 2000s (thankfully I did NOT buy a house there), and I know lots of people who did just that, including my own parents. Although, like a poster above me, my parents treated their rapidly-appreciating house as an ATM machine. I knew other less-irresponsible folks who walked away too, though. (Obviously this was mostly south/central FL.)

 

[tvguy]

Are FHA loans not a thing in NYC?
.

I can't speak to NYC but around here many sellers here won't accept an offer with FHA financing. Of course, this is an area where a full one third of all home sales the past 3 years have been cash sales.

 

[ellie05]

If you had a 20 million dollars inheritance, then you probably aren't as worried about money. That person is as equally upper class as I am according to that website, since it places anyone over a certain income into the upper class category.

In theory that would work yet by your own post you don't agree with it. You are missing that people have different lifestyles at those level yes they do make more money but they probably spend the same in percentage.

I think everyone here has talked about the ranges there is in each income bracket upper middle class can't be compare to the 1%.

It is admittedly easier now that my income is much higher, but even a higher income hasn't made life feel carefree. I think that is the misconception that many people have. If you just made more money, everything would be alright. The reality is that most people would have to make a very, very high salary to reach the point where they felt money was no longer a concern. That doesn't describe most people that fall within that website's definition of the upper class.

 

[DaisyJ]

Hah. I would just be happy if they make sure whoever is getting low downpayment mortgages can actually afford the mortgage.

It still boggles my mind that there were so many people that just walked away from mortgages during the housing crash. They had nothing tied up in it so what was the incentive to not let it go into foreclosure? Most of the time they were not even living in these homes. Just crazy. And hopefully these people who walked away 10 years ago are not getting new mortgages now.

You mean like the people a few days ago hilariously trying to convince me that someone who makes $170,000 a year can comfortably afford a $720,000 house?

 

[erc]

You mean like the people a few days ago hilariously trying to convince me that someone who makes $170,000 a year can comfortably afford a $720,000 house?

I must have missed that exchange. I personally have a 2.5X income rule as the absolute top limit for borrowing. 2X is more comfortable. If I can't find anything decent under those guidelines, I don't even consider moving to an area. Or if I currently lived there, I would be moving.

So if you could put at least $300K down on that $720K house, it could be doable using my personal borrowing guidelines.

 

[Jen and Ashwin]

In theory that would work yet by your own post you don't agree with it. You are missing that people have different lifestyles at those level yes they do make more money but they probably spend the same in percentage.

I think everyone here has talked about the ranges there is in each income bracket upper middle class can't be compare to the 1%.

Even the 1% are not all carefree. Making $420,000 (the minimum to be in the 1% for 2016) a year would definitely bring more financial security, but it doesn't make money meaningless. Before any possible deductions, you would pay roughly $115,000 in taxes on your income. If you saved 50% of your income and lived on the rest, then you would be looking at expenses of roughly $152,500. To me, financial freedom would be being able to draw down on money equal to your current living costs (adjusted for inflation over time) for the rest of your life. Then money wouldn't matter so much any more because you would have a set, continuous standard of living for the rest of your life.

So in this case, this person is saving $152,500 per year and wants to be able to match that in investment income for the rest of their life. It would take about $3 million dollars with 5% returns to ensure they can draw down $152,500 (adjusted for inflation) for life (assuming 50-60 years). To save $3 million, it would take 12 years making 5% interest on investments. This doesn't seem too bad really, except that most people in the 1% usually only remain in the 1% for a few years, at most. The 1% is very fluid and so most people would not be able to save at that kind of rate over that long of a period.

And most people making that kind of salary, just like most people in general, would never save 50% of their earnings. A best case scenario would be that they save 20% (most people making retirement contributions actually save just 7.5%), which would mean they are spending $244,000 per year and would need $6.5 million to match that salary. It would take them 31 years to reach the same point of being able to draw the equivalent of their annual spending, assuming that they maintained that same salary over the entire course of those 31 years (highly unlikely).

 

[Liberty Belle]

This seems a bit aggressive to me. Should I be shamed we are very actively making many sacrifices in our lives in order to make those extra payments towards our home, cars and retirement so that we can feel more financial independence later? My post said that we are living on a very middle class budget (currently spending $3200 a month and putting the rest into extra debt payments and savings). The calculator says I am upper class and I didn't dispute that. I said that isn't how I felt, since living on that kind of budget does not make me feel very upper class. But I know that it will be worth it in the long run.

I could spend more of my money on stuff, I guess. But then I would be in a position to not build financial security. And I bet there are things that many, many people that make much less money than me do actually spend their money on that we do not. I make my own choices about how we spend our income, just as you do for your income.

I'm sorry I wasn't very clear with my tone. I was not judging you or trying to say anything harsh or aggressive. You had said you didn't feel upper class, so I was showing you what middle class looks like (in my situation, at least). No one should be ashamed of how much they make (big or small) or how much they spend. We all have to choose how to live our lives.

 

[Liberty Belle]

And I understand this reality, but we all make choices. When I first started working, I made $40,000 a year pre-tax. I saved $40,000 over two years towards my house down payment so that I could put down 20% and avoid. I was able to accomplish a 50% savings rate even with a much lower income. We all make choices about how we spend and save. It is admittedly easier now that my income is much higher, but even a higher income hasn't made life feel carefree. I think that is the misconception that many people have. If you just made more money, everything would be alright. The reality is that most people would have to make a very, very high salary to reach the point where they felt money was no longer a concern. That doesn't describe most people that fall within that website's definition of the upper class.

I don't think anyone is disputing that. But, there are also degrees of concerns about money. I may be concerned that I haven't taken my family on a vacation in three years or that there are some repairs we really need to make on the house or it will deteriorate. The next person might be concerned because she can't afford to go to the dentist. Another may be concerned because she'd love to join her siblings on a European vacation, but she can't save enough in time.

 

[Jen and Ashwin]

I must have missed that exchange. I personally have a 2.5X income rule as the absolute top limit for borrowing. 2X is more comfortable. If I can't find anything decent under those guidelines, I don't even consider moving to an area. Or if I currently lived there, I would be moving.

So if you could put at least $300K down on that $720K house, it could be doable using my personal borrowing guidelines.

I was right at the 2.5x with the down payment for my home. Since getting married (now two incomes) plus making payments over 5 years, we are right at 1.2x now. When I was shopping for a home, the realtor tried to show me much more expensive homes, since I was pre-approved for up to $300,000. I told her that I wouldn't even look at something over $225,000 because that was all I could afford while still putting 20% down. She probably thought I was kind of crazy.

 

[Liberty Belle]

I was right at the 2.5x with the down payment for my home. Since getting married (now two incomes) plus making payments over 5 years, we are right at 1.2x now. When I was shopping for a home, the realtor tried to show me much more expensive homes, since I was pre-approved for up to $300,000. I told her that I wouldn't even look at something over $225,000 because that was all I could afford while still putting 20% down. She probably thought I was kind of crazy.

I think most of us had been through that. I think those calculators are so ridiculous! Right now, the bank rate calculator online says we could easily (going by the most conservative recommendation) afford a house that is $130,000 more than what we paid for ours. There's absolutely no way we could afford that.