Questions About Livelihoods and Mortgages (loan, debt, borrow, mortgage)
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We like to watch "House Hunters" and several other HGTV shows where houses are bought and sold. On many occasions, we have extreme sticker shock. For example, on one show, husband and wife college professors from Michigan decided to move back to Hawaii. They sold their home in Michigan for just under $200K. They bought a home in Hawaii for $800K.
It's easy to think that these people have large down payments, great jobs, and family money, but in reality, how do you justify a $600K mortgage on college professors' salaries?
As I write, I'm watching a young couple shopping for a $530K townhouse in Boston. How can these people afford a $450K mortgage? What interest rate and term would they get? Maybe people are making a lot more money than the average person. The numbers just don't make sense to me.
Depending on how renowned the university is, many college professors make over $150k. And if they're specialists in science/tech fields or even econ or stat, they can make twice as much doing consulting work. One of my friends who's in biostat makes more from his consulting gigs for the FDA and pharma companies than his lowly salary as an associate prof at a state school in Washington. So in a dual-income home with 2 professionals grossing over $300k combined, it isn't far-fetched to imagine them shopping for a million-dollar McMansion.
Six-figure salaries aren't that uncommon for professionals in major cities like Boston. If both husband and wife command that kind of money, a $530k house would be eminently affordable.
Or maybe they got a little help from family to put the townhouse within reach. Why does it matter? It's just a TV show.
We like to watch "House Hunters" and several other HGTV shows where houses are bought and sold. On many occasions, we have extreme sticker shock. For example, on one show, husband and wife college professors from Michigan decided to move back to Hawaii. They sold their home in Michigan for just under $200K. They bought a home in Hawaii for $800K.
It's easy to think that these people have large down payments, great jobs, and family money, but in reality, how do you justify a $600K mortgage on college professors' salaries?
As I write, I'm watching a young couple shopping for a $530K townhouse in Boston. How can these people afford a $450K mortgage? What interest rate and term would they get? Maybe people are making a lot more money than the average person. The numbers just don't make sense to me.
I certainly understand if these numbers are outside of your experience and I could assume that fuels your query?
I don't believe you see enough of the numbers to make a determination about the viability of their decisions. You could use algebra to attempt to solve for "C", but you'd have to make many assumptions.
HGTV is likely one of my favorite channels. Having said that, I would venture a guess that a great deal of the success of shows such as House Hunters derive their entertainment value from a certain kind of envy and roll playing.
As some one that both rented to lower income folks and sold to higher income folks I was rarely surprised at the range..
...of what some folks considered "adequate".
More than a few renters that I met had literally no assets --- no savings accounts, no retirement money, no valuable furnishings, not even a paid off car.
Some home buyers that I have worked with have not just had solid incomes from good paying jobs but large financial reserves that come from a combination of wise savings, side businesses, family generosity / inheirentence , gambling winnings (seriously, it does happen...) and more.
The basic math is that your debt to income ratios have to meet standards to get a loan, but if you are selling a valuable home in a desirable area and using that to finance a new home the actual amount borrowed might be low / nothing. Lots of folks that are "empty nesters" even quite young can fall into this category...
In general I strongly recommend to younger people to consider how they spend their housing dollars as a primary means to shape their future financial plans. I have know dozens, no hundreds of young people that stretched only a little bit to buy a small house in a desirable area instead of renting a bigger / newer place. The ability to get back their investment and "climb the property ladder" has allowed them to move far faster than any straight salary increases. Of course the trade offs with not having access to live music and expensive bar nights is one of the choices that I understand some people are not willing to forego. I have no problem with that so long as they follow a similar path of non-conformity when it comes to relying on government regulatory structures for healhpthcare, retiremment and who knows what else down the road...
Back to the college professors, you said they are moving back to Hawaii. How's this for a scenario...
A few years ago Mr./Mrs. Professor sell their house in Hawaii for a tidy profit when they are offered posts at U of M. They buy a very modest house near campus in a neighorhood that has held its value due to proximity to the university. Knowing that they eventually want to return to the islands, they live on one salary, saving and investing the other in a market that has provided pretty good returns over the past few years. They both consult on the side and invest that money,too. Mr./Mrs. Professor monitor the job market in Hawaii, polish their skills, and wait for opportunity.
Fast forward to today. Mr./Mrs. Professor is offered a prestigious position in Hawaii. Because they have planned ahead, they have aseveral hundred thousand dollars put aside to purchase their dream house, more than enough to make a down payment on an $800k property with enough left over to make the mortgage.
Doesn't seem at all far-fetched to me. Does it to you?
Last edited by formercalifornian; 12-21-2010 at 11:40 AM..
Watched the show and did a little research. Wife is a Dean at the University of Hawaii Manoa, while husband is an assistant specialist in the College of Education. It's easy to look up their salaries, because the university has to submit an annual report to the state legislature. In 2009, she made $143k. His university salary was a little more difficult to ascertain, but a scan of the report leads me to believe it's somewhere in the neighborhood of $65k. I also found some indication that he does consulting work on the side. Both are in their mid-fifties.
If they had 20% set aside, they would have a $640k mortgage. It's tighter than I'd want to be, but it's within reach. Actually, it's not even that tight. I'm just extremely conservative with money.
Beware the power of the internet!
Last edited by formercalifornian; 12-21-2010 at 12:50 PM..
. I have know dozens, no hundreds of young people that stretched only a little bit to buy a small house in a desirable area instead of renting a bigger / newer place. The ability to get back their investment and "climb the property ladder" has allowed them to move far faster than any straight salary increases.
Currently in most major metro areas its more expensive to by than to rent, so how exactly is purchasing a home going to improve one's finances?
Now, someone that purchased a home in say 2000 has probably made out okay, but what does that have to do with someone purchasing a home today?
Anyhow, I see people purchasing more modest houses on HGTV shows all the time. But the mix definitely seems to be on the higher end, but that makes sense, who would watch the show if they were just looking at $150k "starter" homes? The median household income for Boston is just around $40k, so a $500k a home is beyond the reach of the vast majority of people there.
We like to watch "House Hunters" and several other HGTV shows where houses are bought and sold. On many occasions, we have extreme sticker shock. For example, on one show, husband and wife college professors from Michigan decided to move back to Hawaii. They sold their home in Michigan for just under $200K. They bought a home in Hawaii for $800K.
It's easy to think that these people have large down payments, great jobs, and family money, but in reality, how do you justify a $600K mortgage on college professors' salaries?
As I write, I'm watching a young couple shopping for a $530K townhouse in Boston. How can these people afford a $450K mortgage? What interest rate and term would they get? Maybe people are making a lot more money than the average person. The numbers just don't make sense to me.
It's television. It isn't real. It's entertainment pure and simple. Believing anything you see is pure folly.
In the college professors' case, it is real. It took me less than 15 minutes to verify their last names, salaries, address, and the sales record for the property on the web. Easy enough if you know where to look.
The purchase was filed on April 3, 2009, and they paid $875k for their 1768 sq. ft., 3 bed/2.5 bath home.
Last edited by formercalifornian; 12-21-2010 at 01:26 PM..
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As some one that both rented to lower income folks and sold to higher income folks I was rarely surprised at the range..
