Foreclosure in San Jose>Question Details

Jason, Home Buyer in San Jose, CA

I am thinking about buying my first place

Asked by Jason, San Jose, CA Wed Jan 30, 2008

Hi everyone,

I am thinking about buying my first property after being recently graduated from college. A little about my situation: I am currently earning about 80k gross, currently have about 50k for down payment, have no debt, and credit score above 800. The loan officer mentioned that I would probably be pre-approved for no more than $450K.

So given my background, what are my options and what would be best? Would I be able to afford any house or am I pretty much limited to condos? Should I buy a condo, or should I wait until I can afford a house? I am looking for a place in the South Bay. What areas would be ideal for me? I would like to limit my commute time to a reasonable level. Ideally the place would be a good investment as well.

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19
Hello all,

I'd like to jump in here if I may...I'm in a very similar situation financially and can afford around the same amount. I've been looking all over in the peninsula as well for my first home without success (just way too expensive for what you get) and moved my search over to the east bay where I currently live. My commute from union city to downtown palo alto is approx. 20 min on a good day...40 min on a bad bridge traffic day. considering how close it is and the price difference, am I still better off buying a condo on the peninsula rather than a townhouse in fremont (ardenwood area)? I plan to keep this place for at least 5 years...I figure the nice thing about real estate here is that if you hold on to it long enough, it'll eventually go up...
1 vote Thank Flag Link Wed Jan 30, 2008
HI John,

I don't know your specific market area but I do know real estate.

It's a buyer's market right now and you have great credit - I am sure there are many sellers who are very ready to make a deal with you. My advice to you is to hire a good buyers agent to work for you (I can probably help you find one if you don't know of someone) and then find a property you like with a motivated seller and get the best deal you can. Interest rates are great right now - combine that with a buyers market and the tax breaks and the choice available - it can be a real win for you.
1 vote Thank Flag Link Wed Jan 30, 2008
Hi Jason,

What a great place to be in life! I think you should give yourself a high-five for being as young as you are and having a good job, money in the bank and a great FICO. My guess is that you didn't get there by accident, but by careful and conservative planning. In planning for your next phase you have to decide how conservative you want to be. It's an investment risk where no one has a crystal ball. The buyers we are working with right now are fairly aggressive buyers who invest with the mindset of "buy low, sell high." It's a phrase we have all heard and understand in theory, but it's something completely different when it's our money on the line.

In the end, I'll tell you the same thing I would tell my best friend... when you rent you pay someone else's mortgage and get none of the tax benefits or appreciation. And yes, properties are still appreciating if you buy in the right part of the South Bay. If you wait until you can afford a house there's no guarantee that prices won't have gone up, effectively putting you into the same position you are in now. Another benefit is that the interest rates really good right now. If you wait a few years you might not be able to afford that much more and you will pay more interest. Given your background, I think you should consider starting with a condo in a good area. Look for good schools and make sure the development is well funded. The good schools will help hold your value because they are usually the last to go down in price and the first to go up. A well funded development will have reasonable HOA dues and plenty of reserves so that your house warming present isn't a bill for "x" thousand dollars for a new roof, let's say.

Either way, enjoy the process. You worked hard to get here.

Take care,
Caroline

P.S. Feel free to check out the link below to a good condo vs. home article.
0 votes Thank Flag Link Tue Feb 5, 2008
No offense Jason, but the last person you should ask for advice about buying a house in this market are realtors. Prices will continue to fall at least until next year. If you are in for the long haul, go for it. Just bear in mind that it may take 10 years or more for your property to be worth what you paid for it.
0 votes Thank Flag Link Tue Feb 5, 2008
I live in North Valley and there are a few homes, yes single family homes in this area that would be affordable to you.
Let me know if i can help.
If you want to stay in the city area you may have a harder time finding anything more than a condo.
Hope this helps.
0 votes Thank Flag Link Mon Feb 4, 2008
About this line: "As for the investment potential you are almost always better off purchasing a home"

I wonder about the reaction to this statement, if we ask the thousands of people who have been foreclosed in California over the past six months...

Bruin,
I appreciate your comments about real estate always going up in the long run. I felt the same way until I read Robert Shiller's book, IRRATIONAL EXUBERANCE.

Shiller shows hundreds of years of evidence that home prices do not keep up with the pace of inflation. I grew up in the Bay Area, so I know that market and how bad it will soon be, but don't take my word for it.

Case-Shiller's Home Price index is the most accurate reading on prices of homes in the major metropolitan areas by nearly any account. (same Shiller who wrote the book) Take a look at what is going on with the Case-Shiller index right now:

http://www.latimes.com/business/la-fi-homes30jan30,0,6271844.story

Good luck,
John
0 votes Thank Flag Link Thu Jan 31, 2008
Hi Jason, You have plenty of options available, there are plenty of starter homes in the $450k range, and as for condos there are a multitude of new and resales throughout the Silicon Valley. If you really have your sights on a home, you will find your best value out in Santa Teresa & Blossom Valley, as well as pockets close to downtown.

As for the investment potential you are almost always better off purchasing a home, but as you probably already know location is truly the key.
Web Reference: http://www.boyenga.com
0 votes Thank Flag Link Thu Jan 31, 2008
Julie,
I'm ready to rock and roll and purchase a place.
I've researched and seen a number of homes in the area I would like to purchase. In the area I seek, $400/sq foot is a fair price considering: 1) rental values, 2) historical prices, and 3) income in the area.
Yet those properties sell for over $1000/sq foot.

And during the peak of the boom, they were selling for $1200/sq foot if not more.

I appreciate your optimism, but nothing is selling, more foreclosures pop up everyday, prices are plummeting, and even the investment banks have started to concede that we are in for a major price correction over the next three years.

Waiting is the best thing for me. And I bet if Jason waits (as well as all prospective purchasers), they will feel amazing about it in 18 months.

But here's a question for you: do you think it's possible for me to offer someone the fair price of the property, 40 percent of their listing price? Do you think they would accept?
John
0 votes Thank Flag Link Wed Jan 30, 2008
Hello Jason, I see you wrote you are living with your parents. Have they owned in San Jose for many years? My parents paid $17k for a house in Santa Clara in 1967 and they told me they felt overwhelmed and said to themselves "Oh my Gosh how are we ever going to do this?" I bought my first townhome in 1999 and then a single family home in 2003. Now I have to admit that near future prices may get pretty close to what I paid in 2003 but I don't care because I'm not going anywhere and I still have my house. JUST DON'T BUY MORE THAN WHAT YOU CAN AFFORD. You still want to have a little lifestyle leftover after you pay your mortgage payment. I don't recommend piggy back loans or 100% financing. The bigger down payment, the lower monthly payment, and the more equity you have. So if values go up or down you can just wade through it. Save every penny toward your down payment. LIve with parents, save your money. You don't buy new car and clothes and rack up credit cards, you save and that is good. I commend you for your efforts. Maybe you start with townhouse not condo (nobody living above or below you) with a low monthly HOA fee and in several years when the market is right for you, you can move up to a single family home. Feds just lowered their rates again today so mortgage rates should follow in pending days. If you need more info, you can contact me directly through my website below. I am a native of Silicon Valley and am familiar with and have MLS access to all areas. I would be honored to represent you and answer all the questions you will have but this is not the correct forum for that. Kind regards.
0 votes Thank Flag Link Wed Jan 30, 2008
Jason,
The reason I'm asking is because I'm also eager to purchase, and I'm in similar shoes (out of grad school recently). But all the research I do tends to lead me away from buying. One of my rules of thumb is to look at the places I would like to purchase and figure out what the corresponding rent would be. Then I multiply that by 100 and 120. That's the range of what the price of that particular property will be in a market that is back to normal (according to Robert Shiller's book). In LA, unfortunately, I can rent a place I really like for $2000, but buying that same place would cost me over $6000 a month (including the tax incentive). Prices in LA (and the bay area) are still way too high according to every statistical measure--but recently they have started to plummet.

For me personally, I don't see any reason to purchase when I can rent for one-third the price and put the difference in my pocket, especially considering that when home prices have historically fallen, they tend to stay on a plateau for several years. It's highly, highly unlikely that prices will stop falling anytime soon---a logical conclusion after viewing these New York Times charts:
http://krugman.blogs.nytimes.com/2007/10/27/some-housing-pictures/

Even if they did stop falling, you would have years to purchase the home you like at the same price.
Anyway, I wish you luck. I'm no fortune teller--all I count on is unbiased facts and statistics.
Take care,
John
0 votes Thank Flag Link Wed Jan 30, 2008
John, no offense taken by your inquiries. I am thinking of buying right now due to the lowered interest rates and inventory being as high as it has ever been. Also, I am currently living with my parents, and would like to move out.
0 votes Thank Flag Link Wed Jan 30, 2008
Hello Jason, last night I saw a single famiy home in San Jose just reduce to $450k. The market is down right now. In my opinion you are still better off buying than renting. Rent is high in the South Bay and in my opinion, paying rent is like throwing your money away. Buy in the real estate market for the long term. Stay there for a while, enjoy the tax benefits and have a roof over your head. With your income and your obvious self discipline, you should do just fine. Your income, down payment, debt ratio and credit score is better than average. You will also benefit from tax deductions you may get from homeownership. Speak to your tax person to find out if those deductions may be of benefit to you.
0 votes Thank Flag Link Wed Jan 30, 2008
Jason,
Would love to get your feedback on why you are buying...
Merrill Lynch announced that home prices are going to fall 30 percent by 2010. Home prices have fallen significantly in the past year across the country, and are finally starting to fall in the bay area. Mortgage rates are resetting and foreclosures are popping up, even in the best parts of the bay area. The economy is either in a recession or on the verge of a recession depending on whom you speak with...Also, if you look at any of the most fundamental charts about home prices, they will show that homes are way overpriced based on home prices vs rent prices, and home prices vs. income.

In spite of the horrible state of the market, what would drive you to buy anyway?

Really, I'm not trying to be disrespectful or rude. I'm actually very curious why you would buy in light of all the evidence that housing is a terrible place to put your money right now...
Thanks,
John
0 votes Thank Flag Link Wed Jan 30, 2008
Jason, you should call me and we can discuss it. Since you can afford $450,000 loan and putting down $50,000 (you will also need closing cost and perhaps reserves too) your affordability factor is $500,000 or less. If you are commuting to Palo Alto, highway 85 drops right onto 101 so your options are open. What is a reasonable commute for you? How long do you plan on owning your first place? As appreciation can be greater and quicker in other areas, but most areas in our Valley appreciate yearly. As for a good investment, ownership is far better than renter. I have a great great return on investment analysis I can email you (it's too long to put in this blog) but you may find it of interest.

Also, will you have room mates, how many bedrooms, baths, do you want/need garage. Are you conservative in your spending and willing to forgo amenities for price? I have lots of thoughts for you but really, too much to write here.
Web Reference: http://www.terrivellios.com
0 votes Thank Flag Link Wed Jan 30, 2008
Yeah, I figured that my price range would be a little low for buying a house in this area. In that case, would a condo be recommended? What are some good areas to begin looking at condos? Again, I'm hoping for affordability, a good investment, and a reasonable commute to palo alto. Thanks!
0 votes Thank Flag Link Wed Jan 30, 2008
Hi Jason, It may be tight to find a house in that price range. I would ask you to think about your lifestyle and how you live now and want to live in your first place. If you are active you may not want to be responsible for maintaining a house and yard. You may appreciate paying association dues for the amenities of a pool, etc. Unless you are going to come into a lot of money or huge income raise soon you may not catch up to the market by waiting.

Since you are a first time home buyer there are special programs out there for you, such one offered in San Jose in certain redeveloping areas. There are new condos/townhomes being built which qualify for these programs.

It's a great time to buy, as your competition is low, we don't know when this will change. I've seen the market switch what appeared to be overnight. Email me or visit my website for more information.

In any event enjoy the process, owning your first home is a very exciting and can be rewarding experience.
Web Reference: http://www.terrivellios.com
0 votes Thank Flag Link Wed Jan 30, 2008
Yvette, to answer your question, the most important things to my decision are probably affordability, appreciation, a reasonable distance from work.
0 votes Thank Flag Link Wed Jan 30, 2008
Jason,
Read a book called IRRATIONAL EXUBERANCE by Robert Shiller (the same Shiller of the Case-Shiller Home Price Index). It would be a good introduction to the current state of housing prices and a nice primer on homes as an investment...

If you want more info, I'm happy to pass it along...
John
0 votes Thank Flag Link Wed Jan 30, 2008
Hi Jason, There re so many questions to be answered, What’s important to you in purchasing a home?
What are your specific needs and have you started looking? Areas are endless in the south bay...
Visit my web site http://www.yvettemcavoy.com and start a search. I specialize in Cambrian, Campbell and surrounding areas of San Jose/Silicon Valley. Click on the community link at the right of my site and review the communities. Email me and we can talk, have a great day:)
Web Reference: http://www.yvettemcavoy.com
0 votes Thank Flag Link Wed Jan 30, 2008
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