Urgent: escrow situation in bay area

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gurusw
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Urgent: escrow situation in bay area

Post by gurusw » Wed May 16, 2018 10:58 pm

Hi,

I briefly read some threads on bay area housing. But I thought of presenting my personal situation for direct feedback.

We are in escrow for a SFH of $1.2M.
Down-payment $240K. Mortgage $960K.
Closing cost $10K
After moving in, there is expense of $10K for appliances and necessary upgrades.

Single earner family of 3. Husband 43 & working in Tech in bay area. We have a 10 year old in 4th grade.
Net worth $1M, $600K in stock mutual funds. (down-payment monies will come from $400K cash/bonds)
Annual wages $200K
Annual Bonus+RSUs = $50K (Will materialize 100+% in present stock market & tech scene)

Current Rent $3K per month (distance to office 5 miles, elementary school rating 9, middle school rating 8)
Future mortgage + property taxes + home insurance = $6K (distance to office 20 miles, elementary school rating 7, middle school rating 8)

I am not sure if we did the correct thing by puchasing a house at this point of time. But other than the timing, I want the members to check if I am overextending myself with this kind of mortgage at this age. Need your guidance.

I think if I get out of the contract now, I can lose Escrow deposit of $36K. But maybe that's prudent thing to do to have a good night's sleep and/or losing 20% of house value in near term. Also if I keep renting instead of buying the house; I will make up for the loss of $36K in a year (since I save $3K every month by renting instead of buying).

Also if I want to get out of contract, how late in the cycle can I do so? Just before signing the deed & handing over down-payment check?

Thanks for the feedback.

BusterMcTaco
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Re: Urgent: escrow situation in bay area

Post by BusterMcTaco » Wed May 16, 2018 11:05 pm

Take a deep breath. What are the reasons you want the home?

$6000/year includes insurance. Do you pay renters insurance? It includes money going into equity. There is a interest deduction for $750k principle, although without significant other deductions that's admittedly less beneficial today than a year ago.

I don't think you'll have too hard a time affording this, but what is you safety net beyond your investments. Family? Are your investments mostly in untappable retirement accounts?

My biggest concern is the one income but that's the way of it for most people.

BusterMcTaco
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Re: Urgent: escrow situation in bay area

Post by BusterMcTaco » Wed May 16, 2018 11:07 pm

Also, what are your annual expenses other than housing? That makes a huge difference.

e5116
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Re: Urgent: escrow situation in bay area

Post by e5116 » Wed May 16, 2018 11:11 pm

What does your wife think? If it were me, I'd rely on her more than internet strangers. Obviously, you're getting cold feet which does happen sometimes. I kinda got it myself too as buying a house is a huge investment and risk. You're probably buying more house than I'd personally buy at that income, but probably less than a lot of people at a similar asset level in a VHCOL location. So, your assets are a bit of a cushion. Obviously, based purely on financials, looks like renting is the better deal (I can't imagine they're equivalent homes though), but people often buy for other reasons (wanting to feel established at a place, making it your own, etc.). Good luck!

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Watty
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Re: Urgent: escrow situation in bay area

Post by Watty » Wed May 16, 2018 11:17 pm

gurusw wrote:
Wed May 16, 2018 10:58 pm
I think if I get out of the contract now, I can lose Escrow deposit of $36K. But maybe that's prudent thing to do to have a good night's sleep and/or losing 20% of house value in near term. Also if I keep renting instead of buying the house; I will make up for the loss of $36K in a year (since I save $3K every month by renting instead of buying).

Also if I want to get out of contract, how late in the cycle can I do so? Just before signing the deed & handing over down-payment check?
You really need to ask a local lawyer what your options are and if there is anything you can do to get out of the contract without losing your escrow. One possibility would be to find some other buyer to take over the contract. With as crazy as the Bay Area is that might not be too hard to do.

I would not assume that you can just walk away from the deal and not have any liability other than the escrow. If the seller has any other losses because you acted in bad faith they may be able to try to sue you for that.

gurusw
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Re: Urgent: escrow situation in bay area

Post by gurusw » Wed May 16, 2018 11:52 pm

Buster,
The reason for home was to build equity & not pay rent in retirement years. Also we want our kid to have a home where he form memories, where he makes friends & attends same schools with them. Basically he build bonds with them & the place. At rental place, people come & by the time he makes friends, they leave.

My rental insurance is cheap at $100 per year.
Out of my $1M , $450K are in retirement.
I can't rely on parents/in-laws for my finances. But neither are they dependent on me.
My average yearly expenses are approx $36K (including everything - annual vacation, car insurance, etc etc).

e5116,
If I wanted to buy something cheaper in similar rated school district, it would have been condo/townhouse, or a SFH with 30+ mile commute.
So we decided to go for small 3 BR SFH. Although at present we live in 2 BR apartment.
Wife wants to "settle down". But she cares about me & is ready for status quo if it makes financial sense.
The whole reason to seek advice from bogleheads is for unbiased analysis based on number crunching.

Watty,
I did talk with lawyer & his solution is to find flaws in inspection, etc to get out of the contract. But that did not work out.
He did not say seller can sue me, but he said that if they can sell property for higher price than current sale price ($1.2M), then he can make case that we should at least get some escrow amount back. Not sure if that will work, or will I end up paying him in addition to losing escrow.
This poperty does not have mortgage & it was rented out before coming to market. So I don't think seller has losses that cannot be covered by escrow.

usnaron
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Re: Urgent: escrow situation in bay area

Post by usnaron » Thu May 17, 2018 12:00 am

Read this short article and let me know what you think.
Mortgages in the Bay Area are way out of line when compared to equivalent rents. Prices could continue to go higher but I believe it is only based on the belief that people can sell it for more later, kind of like bitcoin.

https://www.gocurrycracker.com/how-i-ma ... al-estate/

lotusflower
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Re: Urgent: escrow situation in bay area

Post by lotusflower » Thu May 17, 2018 12:07 am

I think you would be crazy to get out of the purchase contract and risk your $36k earnest money plus time spent on the hassle of fighting it out. The risk of a 20% loss does not seem like a large risk, and as long as you can make the payments (realizing that can be a big if) it doesn't matter if the price were to drop in the short term (and it probably won't).

BusterMcTaco
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Re: Urgent: escrow situation in bay area

Post by BusterMcTaco » Thu May 17, 2018 12:10 am

Your expenses are remarkably low. By comparison, we made $450k last year, have a $1M mortgage at 3.05%, and about 100k-110k/year in non housing expenses. I sleep fine, even though my wife was just laid off.

I should add that as a sole proprietor with hundreds of contracts my own income is relatively secure. So that's a factor in my comfort level.

gurusw
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Re: Urgent: escrow situation in bay area

Post by gurusw » Thu May 17, 2018 12:15 am

usnaron,
I started seeing the validity of these articles as I started figuring out what all my new house needs. Plus the cost of additional utilities, gardening, etc.

lotusflower,
Thanks for your input.

Btw I forgot to mention in my previous posts that my both cars are fully paid. One has 20K miles & the other has 30K miles. So there is still lot of life in them, and I don't see that expense coming up soon either.

Luckywon
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Re: Urgent: escrow situation in bay area

Post by Luckywon » Thu May 17, 2018 12:16 am

I also had cold feet 20 years ago during escrow for my home and it turned out to be one of the best decisions I have ever made. What's interesting is how far off my financial analysis was. My point is there are so many complete unknowns there is no use overanalyzing it. But paying 36k to walk away is a sure loss and seems like a bad decision to me. My advice to you is to press on and close escrow. Enjoy your home!

TravelGeek
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Re: Urgent: escrow situation in bay area

Post by TravelGeek » Thu May 17, 2018 12:21 am

How secure is your job and what job prospects does your spouse have?

gurusw
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Re: Urgent: escrow situation in bay area

Post by gurusw » Thu May 17, 2018 12:44 am

Luckywon,
Thanks for the positive vibe there :)

TravelGeek,
My job is as seure as any 40+ year old's job in the Tech industry. Although my current employer does not have bad reputation of firing people or layoffs. But if things go downhill, these companies will do anything for survival.
My spouse is currently doing a certification that will earn her $40K per year after completion. We see that as a side income & a way to have med insurance. But with this move, she will also have increased commute to the community college (from 5 to 25 miles).

CurlyDave
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Re: Urgent: escrow situation in bay area

Post by CurlyDave » Thu May 17, 2018 12:52 am

You are only 43. What are your projected raises over the next 10 years?

I lived in the SF Bay area from 1978 through 2008. It has always been VVHCOL compared to most other places in the US. As your salary increases, your housing expenditures will come more in line with your income.

You do not have to stay in the house forever. Moving from the Bay area to a lower COL area for retirement is a very appealing option. You will have savings/portfolio based on Bay area salary, house sale profits based on Bay Area, and new expenses based on a lower COL.

What you are experiencing is called "buyer's remorse." Try to ride it out.

gurusw
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Re: Urgent: escrow situation in bay area

Post by gurusw » Thu May 17, 2018 1:03 am

CurlyDave,
Thanks for the encouragement. I cannot project future income or job stability. But I am working for 20 years, and my experience is that the pay raise will average out to be 6% to 7% per year. Of course things are getting riskier as I get older in this industry. If I get stuck in my career, or if there is bad downturn, then there may also be pay reduction for a short time.

runner540
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Re: Urgent: escrow situation in bay area

Post by runner540 » Thu May 17, 2018 7:35 am

Here's what I see: you are going to double your housing cost AND quadruple your commute, all while signing up for a mortgage that is 4-5x your income. I would be really unhappy making those trades. What are you getting in return that is worth all that?

Earnings at age 43: may be peak earnings, don't borrow assuming they will continue to go up.

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unclescrooge
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Re: Urgent: escrow situation in bay area

Post by unclescrooge » Thu May 17, 2018 7:43 am

Congrats on being able to buy a house in Bay area on one income!

So long as your job is secure, you should do it.

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Watty
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Re: Urgent: escrow situation in bay area

Post by Watty » Thu May 17, 2018 7:57 am

A few more thoughts, but for perspective I seem the resident "Move from the Bay Area to an affordable house" guy so you might take what I say with a grain of salt. This is because I worked in tech in Silicon Valley(which has always been expensive) in the 1980's and I moved when I was ready to buy my first house. This worked out very well for me and I was able to retire in my 50's.

I agree that buyers remorse is common but you are not talking about a $300K house in a normal area.
gurusw wrote:
Wed May 16, 2018 10:58 pm
Mortgage $960K.
For perspective with a 4.5% interest rate that will cost you about $43,000 in interest each year. Property taxes might be another $20,000 a year(wild guess). If you do give up the $36K escrow it will not take you that take you very long to "break even".
gurusw wrote:
Wed May 16, 2018 10:58 pm
Net worth $1M
.....
My average yearly expenses are approx $36K
Your net worth is not very high for your income and age, low expenses and rent.
gurusw wrote:
Wed May 16, 2018 10:58 pm
Husband 43...The reason for home was to build equity & not pay rent in retirement years.
A 30 year mortgage will not be paid off until you are 73.
gurusw wrote:
Wed May 16, 2018 10:58 pm
distance to office 20 miles
That is to your current job. If you change jobs then your commute could be even longer.

A huge advantage of renting is that you can easily move if you change jobs.
gurusw wrote:
Wed May 16, 2018 11:52 pm
Also we want our kid to have a home where he form memories, where he makes friends & attends same schools with them. Basically he build bonds with them & the place. At rental place, people come & by the time he makes friends, they leave.
If you have a 20 mile commute I would guess that will take the better part of an hour each way. Unless you can work from home a lot or you work off hours that will be time that he will not see you. You may not see him in the morning if you have to get up early to go to work before he gets up. If he goes to bed at 9:00PM and you will not get home until 6:30 PM instead of 5:30 PM the loss of that hour is a high percentage of the time he can see his dad on weekdays. I am not sure that giving up that much time with his dad when he is a "tween" would be a good tradeoff.

Since he is 10 there is only about 8 years until he will graduate from high school and likely head off to college. You would be paying a lot per year to have the house fo him for just 8 years.

You did not mention college savings. If you keep renting you might be able to save and pay for his college so that he would not have any student loans. You will be in your 50's when he is in college and being in tech you cannot count on your income to pay his college expenses out of your cash flow. If the choice is between him having large student loans or living in rentals for 8 more years I would suspect that when he is 30 years old your kid would much rather not have the student loans.

gurusw wrote:
Wed May 16, 2018 10:58 pm
But I thought of presenting my personal situation for direct feedback.
I have been accused of sounding like a broken record and just not "getting it" by suggesting that people move to less expensive areas because of crazy housing prices. Here is the "broken record" part.

One option if you don't have strong family ties to the Bay Area would be to bail out of the purchase and then plan to move to a less expensive area before your kid starts middle school. That way he could have the stability that you want for him and in 80% of the country you could buy a very nice home for $300K in cash.

Even back when I lived in the Bay Area one thing that I saw was that some older coworkers had grown up kids that were in their 20's that were still living at home with them because they did not have high paying jobs and they could not afford an apartment even with roomates. You might try to picture what living in the Bay Area will be like for your kid in 20 years.

In contrast I am in Atlanta now where housing is still affordable and my son and all of his college friends were easily able to afford to buy their first homes when they were in their mid-20's. My son is a software engineer and doing well so he was able to afford to buy a nice home about ten minutes away from us which works out well since we have a grandson now.

We also have friends with a son who is severely dyslexic and who was barely able to graduate from high school. At one point he was working at a chain muffler shop but even with that income he was able to afford to buy a small older house that was not in a terrible area.

Some people grimace when I do this but here is an example the type of house you can get in the suburbs of Atlanta for $300K and these is near where many of the tech companies are located. Housing closer to downtown is more expensive but around here many jobs are in the suburbs.

https://www.realtor.com/realestateandho ... A637943470

Before I retired I was a software developer and my son also got a degree in Computer Science and is a Software Engineer now. I've moved around a few times and my impression is that unless you are in some specialty niche that tech salaries don't vary by area by as much as you might think and certainly not enough to make living in a very high cost of living area worthwhile. The stock options seem to what is a lot different in different parts of the country.

A lot of the high pay in places like Silicon Valley goes to taxes so you have to factor that in, the after tax regional pay differences is what is important.

You would need to play with the numbers but it might be possible to move somewhere and buy a house for cash and retire about the time your kid graduates from college.
Last edited by Watty on Thu May 17, 2018 8:15 am, edited 1 time in total.

Leemiller
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Re: Urgent: escrow situation in bay area

Post by Leemiller » Thu May 17, 2018 8:03 am

I don’t understand why you think you’re going to lose 20% of your housing value in the near term? I also think you’re exposing yourself to a possible lawsuit and an attorney may cost a lot more than 36k.

Personally, I think you should pay down the mortgage by an additional 200-300k and go through with the deal. This would at least bring your payment down to a more reasonable amount in line with your income. Not buying the house at this point, unless your wife is 100% on board with that you may be risking years of resentment over that call. Sorry, you’re in a tough spot.

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LucyB
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Re: Urgent: escrow situation in bay area

Post by LucyB » Thu May 17, 2018 8:06 am

Try not to panic. Pencil it out and try to be rational about the decision. We did something similar at age 38 and there were times that we both questioned the decision. Back then interest rates were at 7.5% and the payments were significant. Now interest rates are still very low. For us, the initial panic/stress passed and it turned out to be the best decision in hind sight. Walking away from your deposit is a big deal and there could be additional monies owed as well. Try to look at all this objectively and work back to the reasons you entered into the decision in the first place. Trust your instincts (your initial thoughts were probably spot on before the emotion set in) and sometimes you need to take a leap of faith. Best of luck to you.
The above comments are merely an expression of personal opinion and should not be considered advice in any form—tax, legal, financial or otherwise.

gotester2000
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Re: Urgent: escrow situation in bay area

Post by gotester2000 » Thu May 17, 2018 8:14 am

You are doing good in VHCOL and have a fair income and great savings rate(South Asian I presume going by name and savings rate!).
With a million saved and saving about $120k/year you should buy the house. Its more an emotional decision that will give your family stability and help you prosper.
I am of the same age and bought a house even before marriage - never repented.

mouses
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Re: Urgent: escrow situation in bay area

Post by mouses » Thu May 17, 2018 8:15 am

My concern is your job. You're at an age where you will start to be considered old and expendable in the tech industry. I would not have made an offer on this house, but instead have gone into more saving mode, but I don't know the fallout from trying to get out of the contract.

Kinkelly
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Re: Urgent: escrow situation in bay area

Post by Kinkelly » Thu May 17, 2018 8:24 am

Guru,
You are fine. I live and work in the Silicon Valley like you and have bought and sold 3 homes in the Bay Area over the last 20 years and have made a killing. I have had the same angst as you each time. Calm down, what you have to realize about the Bay Area your fixed mortgage acts as rent control. In a few years your mortgage payment will be significantly lower than what it would cost to rent a place to live. Hope that helps.

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Watty
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Re: Urgent: escrow situation in bay area

Post by Watty » Thu May 17, 2018 8:26 am

LucyB wrote:
Thu May 17, 2018 8:06 am
Walking away from your deposit is a big deal and there could be additional monies owed as well.
If you wanted to get out of the deal you would want your lawyer to handle the process to make sure that you would not have any additional liability.

toomuchRE
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Re: Urgent: escrow situation in bay area

Post by toomuchRE » Thu May 17, 2018 8:30 am

gurusw wrote:
Wed May 16, 2018 10:58 pm
Hi,

I briefly read some threads on bay area housing. But I thought of presenting my personal situation for direct feedback.

We are in escrow for a SFH of $1.2M.
Down-payment $240K. Mortgage $960K.
Closing cost $10K
After moving in, there is expense of $10K for appliances and necessary upgrades.

Single earner family of 3. Husband 43 & working in Tech in bay area. We have a 10 year old in 4th grade.
Net worth $1M, $600K in stock mutual funds. (down-payment monies will come from $400K cash/bonds)
Annual wages $200K
Annual Bonus+RSUs = $50K (Will materialize 100+% in present stock market & tech scene)

Current Rent $3K per month (distance to office 5 miles, elementary school rating 9, middle school rating 8)
Future mortgage + property taxes + home insurance = $6K (distance to office 20 miles, elementary school rating 7, middle school rating 8)

I am not sure if we did the correct thing by puchasing a house at this point of time. But other than the timing, I want the members to check if I am overextending myself with this kind of mortgage at this age. Need your guidance.

I think if I get out of the contract now, I can lose Escrow deposit of $36K. But maybe that's prudent thing to do to have a good night's sleep and/or losing 20% of house value in near term. Also if I keep renting instead of buying the house; I will make up for the loss of $36K in a year (since I save $3K every month by renting instead of buying).

Also if I want to get out of contract, how late in the cycle can I do so? Just before signing the deed & handing over down-payment check?

Thanks for the feedback.
Wow, ~1MM mortgage which is 4X your salary with single income... I'm balking at 500K mortgage at the same income... ( but I have been accused of being extra conservative...)

Having said that, you have a reasonable savings cushion.. I wouldn't lose the deposit but go ahead. Don't make more than 20% down payment.
Look for an opportunity to get out if the appraisal comes low. What bothers me is not the house will drop or not but the actual house affordability.. Im not sure if you have done the actual calculation but you might be forced to dip into your savings once you start paying mortgage.. Only way to make ends meet here is to stop 401K contribution, HSA etc...

Jags4186
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Re: Urgent: escrow situation in bay area

Post by Jags4186 » Thu May 17, 2018 8:35 am

Do you expect income to rise dramatically? If the economy turns will it be difficult to get a job? 43 years old in tech can be “old”. Based on the income I’m guessing the husband isn’t very senior if new college grads are making $100k+ in tech. Does the wife have the ability to go out and get meaningful employment?

I would not want a $6000/monthly payment for 30 years at age 43 on a $200-250k income. Your household makes $25,000/yr more than my household and I’m not entirely comfortable with our $2500/mo payment.

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Re: Urgent: escrow situation in bay area

Post by Grt2bOutdoors » Thu May 17, 2018 8:40 am

You are panicking and getting cold feet. I would not walk now, there is nothing wrong with the home. Losing $36k is huge - you will be down 4% with the swipe of a pen. Why are you relying on a bunch of strangers to help you decide? Shouldn’t you have made this inquiry before you signed contract, obtained lawyer, put down money, get mortgage?

If you are not comfortable, get out. But don’t even think of looking for a house again, if you are prone to panic.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Tal-
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Re: Urgent: escrow situation in bay area

Post by Tal- » Thu May 17, 2018 8:51 am

On an annual basis, can you afford a 6K/month PITI payment, and still invest for retirement while living a life that you would be happy with?
Debt is to personal finance as a knife is to cooking.

ryman554
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Re: Urgent: escrow situation in bay area

Post by ryman554 » Thu May 17, 2018 8:52 am

I think your mortgage is high for your salary, but you can make it work.

I did something very similar to you back in 2010, with similar to lower salary than you. I have a slightly higher salary than you, and I will tell you that 960k mortgage, you are paying $5000 (or more) a month in P&I. You will have ~1500/month in property taxes. That's 78000/year, round it up to 80k/year including insurance.

Assuming about 60k or so in income taxes and another 10k or so in FICA/medicare, that's 70k/year in taxes.

You are now at 150k, without looking at any other expenses. If your other expenses are really 34k / year, that seems low. Particularly with a 4x commute, I'd put you closer to 40k/year, which is where we are at. And we're pretty frugal, but this includes things like car/health insurance, utilities, ...

So that's 190k out of 250k spoken for, and we haven't talked about retirement savings or anything that approaches "entertainment" or "emergencies".

That leaves 60k/year for the future+now, or $5k/month. You can certainly do it. Be careful not to sacrifice your future for today's needs.

toomuchRE
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Re: Urgent: escrow situation in bay area

Post by toomuchRE » Thu May 17, 2018 8:59 am

I would say go by your gut feeling... I backed out of a contract because the appraisal came low, just before the bubble burst..
The best decision ever.. I didn't back-out because the appraisal was low, but I figured it didn't make sense. I figured something is up with the market..

Yours is clearly a emotional decision under pressure. Peer pressure, fear of rising prices and the feeling that you cant afford a house if you wait even with good salary, losing the race feeling etc..

So go by your gut feeling and ignore rest so that you don't feel guilty later.

runner540
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Re: Urgent: escrow situation in bay area

Post by runner540 » Thu May 17, 2018 9:01 am

ryman554 wrote:
Thu May 17, 2018 8:52 am
I think your mortgage is high for your salary, but you can make it work.

I did something very similar to you back in 2010, with similar to lower salary than you. I have a slightly higher salary than you, and I will tell you that 960k mortgage, you are paying $5000 (or more) a month in P&I. You will have ~1500/month in property taxes. That's 78000/year, round it up to 80k/year including insurance.

Assuming about 60k or so in income taxes and another 10k or so in FICA/medicare, that's 70k/year in taxes.

You are now at 150k, without looking at any other expenses. If your other expenses are really 34k / year, that seems low. Particularly with a 4x commute, I'd put you closer to 40k/year, which is where we are at. And we're pretty frugal, but this includes things likei car/health insurance, utilities, ...

So that's 190k out of 250k spoken for, and we haven't talked about retirement savings or anything that approaches "entertainment" or "emergencies".

That leaves 60k/year for the future+now, or $5k/month. You can certainly do it. Be careful not to sacrifice your future for today's needs.
It's actually even tighter than this on a straight salary basis ($200k) if the bonus/RSUs don't come through.

padawan
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Re: Urgent: escrow situation in bay area

Post by padawan » Thu May 17, 2018 10:18 am

I'm slightly younger than you but recently went through a similar scenario (same age son, similar income, savings, etc) and my wife and I were considering a 1.3 million dollar home in the bay area. I've gone through the numbers over and over again.

We decided to keep renting and keep socking away money in investments (index funds). At the end of the day my wife and I want financial security more than a house. It's frustrating because our rental is not ideal but it's in a great school district and is half of what a mortgage would be. I think the reality of age-ism in Silicon Valley is something to seriously take into account. Just a day ago I had a coworker tell me he wouldn't consider a job candidate because he's probably "too lazy" - the reasoning was he had a wife and kids ("Oh, but not like you." Of course). Absolutely infuriating but common.

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Re: Urgent: escrow situation in bay area

Post by Katietsu » Thu May 17, 2018 11:42 am

IF you decide you want to get out, do so as soon as possible. The seller is much more likely to be cooperative the sooner you do it. Next, meet with a real estate lawyer. In my case, I agreed to let the buyer have the escrow money, which was just a couple thousand dollars in return for a release of any other liability. Since the house ultimately sold for $8000 less, I made the right call. I could have been held responsible for that $8000 otherwise.

chillyuber
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Re: Urgent: escrow situation in bay area

Post by chillyuber » Thu May 17, 2018 11:48 am

Absolutely do not back out of the deal. You will lose a guaranteed 36k and potentially have to deal with other fees and/or a lawsuit.

Which bay area town is this house in?

You're just nervous because you are taking a financial risk. Nothing wrong with that it is expected for you to be nervous. The risk you are taking doesn't come without rewards though. Your potential rewards are:

1) equity in house.
2) hedge against inflation (don't underestimate this one... Read about what happened in the 70s. If inflation starts spiking this house can be a life safer)
3) potential appreciation

srt7
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Re: Urgent: escrow situation in bay area

Post by srt7 » Thu May 17, 2018 12:08 pm

OP,

In your position, my first option would have been a cheaper place even if it isn't a SFH or a SFH with a longer commute. My second option would be your current pick. I think you should seal the deal and enjoy your house!
I can't think of anything more luxurious than owning my time. - remomnyc

Easy Rhino
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Re: Urgent: escrow situation in bay area

Post by Easy Rhino » Thu May 17, 2018 12:44 pm

I can't advise you whether or not buying the house is a good idea.

I mean, we're just in San Diego, but that still looks cheap in comparison. The house is a little over twice what ours cost when we bought it (mortgage is 3x), and your income is about 33-66% higher. i'm guessing this would pinch your finances hard, but you'll know your monthly numbers better than me.

And you've got a kid to worry about with the move and a wife that needs to buy in also. I think the non financial considerations are actually going to be more difficult to navigate.

Oh, and emotionally you need to figure if you're having justified or unjustified cold feet. For me, the cold feet was before making the offer and sending in the deposit. During the escrow process it was all business (although we actually did back out of a house after the inspection was a nightmare, so it was still a long and dramatic process).

But hey, why is everyone so worried about losing your deposit? here in southern California it's customary that the deposit is returned as long as the buyer has a good reason, and it's pretty easy to generate a good reason to withdraw. ideas would include:
* get a thorough inspection, and provide an unreasonable list of repair demands.
* appraisal lower than anticipated
* mortgage interest rate higher than anticipated

And run the ideas by your realtor. He/she'll know more.

gurusw
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Re: Urgent: escrow situation in bay area

Post by gurusw » Thu May 17, 2018 2:51 pm

Thanks everyone. We have moved between states 2 times since my son is 3, and the family is just tired of moving again. Maybe we made wrong choices in the past. I know places like Atlanta can be very cheap, but I have friends moving to bay area for better job opportunities from different places in the world. So we thought of staying put, and taking risk. Now that the house/risk is becoming reality, I'm going through emotions.

Summarising the responses, I see:
- 5 people advocating to buy
- Additional 7 people advocating buy, mainly to save my $36K deposit
- At least 2 are worried about lawsuit besides losing deposit, if I walk away
- 4 people don't necessarily see issue in buying - but think single income for my age in Tech as the main risk
- 3 people think renting would have been better
- 1 person thinks I should have moved to LOCOL area now, and one person asking to do so in retirement
- Other comments are that, I have some cushion from existing assets, but I may have to compromise my lifestyle

So I will go ahead with this purchase. I will save my deposit, avoid the lawsuit, and make my family happy. If income becomes issue, I will evaluate my options then. I cannot pencil everything in a day. But there are 3 main scenarios:
- If bay area keeps propsering like it did for last 20 years, and I remain successful in my job; I won't have issues.
- If bay area continues to prosper, but my income becomes issue because of age-ism; at least I can get out with capital gains on this house.
- If bay area economy takes serious hit, then all bets are off.
Time will tell, and I will keep you posted.

Ron Ronnerson
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Re: Urgent: escrow situation in bay area

Post by Ron Ronnerson » Thu May 17, 2018 3:01 pm

You obviously won’t be able to save quite as much but, on the positive, will begin building equity in your house. You said your spouse will begin making $40k plus benefits upon completion of a program as well. The second income along with future raises for both you and your spouse should help bring the savings rate back up while your mortgage amount stays fixed and your property taxes stay roughly the same due to prop 13. Since your job security isn’t as solid as it could be, I’d have a lot in the emergency fund in case you need to use it. It makes sense to be cautious in your situation but I’d proceed on. Enjoy your new house.

I just saw you posted while I was typing the above. I think you're likely to do fine.

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celia
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Re: Urgent: escrow situation in bay area

Post by celia » Thu May 17, 2018 3:06 pm

gurusw wrote:
Thu May 17, 2018 2:51 pm
- 4 people don't necessarily see issue in buying - but think single income for my age in Tech as the main risk
I'm in this camp, but the risk can be minimized by having each of you have life and disability insurance for at least the cost of the house. The insurance benefit can pay it off and the survivor will thus have lower living expenses. I think there is a good chance you are probably insured quite well, but your wife should be too.

Don't worry about the "cold feet" so much. It's just that you don't do a transaction this big every day, do you? :D

toomuchRE
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Re: Urgent: escrow situation in bay area

Post by toomuchRE » Thu May 17, 2018 3:08 pm

I think you don't have to worry too much on job security... You will be alright. Its just that you are stretching little too much. I would get out if there was an opportunity without penalty.. I wonder how did the bank even approve that high mortgage for this income. Because with Trumph's SALT cap of 10K and 750K mortgage deduction limit, you will be losing a lot of tax advantage starting this year.
Last edited by toomuchRE on Thu May 17, 2018 3:10 pm, edited 1 time in total.

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Pajamas
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Re: Urgent: escrow situation in bay area

Post by Pajamas » Thu May 17, 2018 3:10 pm

gurusw wrote:
Thu May 17, 2018 2:51 pm

- If bay area economy takes serious hit, then all bets are off.
Someone will surely correct this if I'm wrong, but I think California is a non-recourse state and you could just hand the keys to the bank and walk if it came to that. Your credit score would certainly take a hit but would eventually improve.

rayson
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Re: Urgent: escrow situation in bay area

Post by rayson » Thu May 17, 2018 3:14 pm

Grt2bOutdoors wrote:
Thu May 17, 2018 8:40 am
You are panicking and getting cold feet. I would not walk now, there is nothing wrong with the home. Losing $36k is huge - you will be down 4% with the swipe of a pen. Why are you relying on a bunch of strangers to help you decide? Shouldn’t you have made this inquiry before you signed contract, obtained lawyer, put down money, get mortgage?

If you are not comfortable, get out. But don’t even think of looking for a house again, if you are prone to panic.
+100

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tyrion
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Re: Urgent: escrow situation in bay area

Post by tyrion » Thu May 17, 2018 3:18 pm

Bookmark this thread, come back and update every year (or 2 years) and see how it all plays out.

I live in a high cost area, similar age, own too much house (for my income). Also worry about job stability. But living scared is no way to go though life.

I try to pay down debt where I can, max out retirement accounts, and then enjoy some of the things life has to offer.

HornedToad
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Re: Urgent: escrow situation in bay area

Post by HornedToad » Thu May 17, 2018 3:30 pm

toomuchRE wrote:
Thu May 17, 2018 3:08 pm
I think you don't have to worry too much on job security... You will be alright. Its just that you are stretching little too much. I would get out if there was an opportunity without penalty.. I wonder how did the bank even approve that high mortgage for this income. Because with Trumph's SALT cap of 10K and 750K mortgage deduction limit, you will be losing a lot of tax advantage starting this year.
Why wouldn't the bank approve it? He has a $1Mil networth for a $1.2mil house. Mortgage to income is also around 3.5x at 20% downpayment.

Honestly, there's not much worry you "can't" afford it, the worry is that it would have an unduly negative effect on other savings/life goals/etc


If you had 300-400k networth then it would be a much different situation. Although, the way you wrote the post, it wasn't clear if the retirement savings is included in networth or don't have separate or how it fit in?

gurusw
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Re: Urgent: escrow situation in bay area

Post by gurusw » Thu May 17, 2018 3:48 pm

HornedToad,

$1M includes retirement. A couple of years back, I was saving $60K per year. Then my income started to improve, and now my savings are reaching $100K per year. So when I initially did the calculations, I thought I can put additional savings in RE & afford a house. I don't think my lifestyle will take a hit if the income remains stable.

chillyuber
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Re: Urgent: escrow situation in bay area

Post by chillyuber » Thu May 17, 2018 3:56 pm

OP,

What town is this in the bay area? How good of a decision this is depends on that answer.

gurusw
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Re: Urgent: escrow situation in bay area

Post by gurusw » Thu May 17, 2018 4:05 pm

chillyuber, this is in Fremont.

chillyuber
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Re: Urgent: escrow situation in bay area

Post by chillyuber » Thu May 17, 2018 4:10 pm

gurusw wrote:
Thu May 17, 2018 4:05 pm
chillyuber, this is in Fremont.
Good choice. You'll probably do very well in the next 20 years with this purchase.

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LiveSimple
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Re: Urgent: escrow situation in bay area

Post by LiveSimple » Thu May 17, 2018 4:18 pm

You put the deposit and n line to buy the house, just buy and never look back.

Overall the appreciation in Bay Area is much better than other areas.

In twenty years if you have the job in Bay Area, you will thank for the RE appreciation.

Anyways no one knows what the future is in store, but progress positively.

likashing
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Re: Urgent: escrow situation in bay area

Post by likashing » Thu May 17, 2018 5:48 pm

Single earner family of 3. Husband 43 & working in Tech in bay area.
Annual wages $200K
The only issue is Bay Area tech is that it is cyclical. The $960k mortgage is 30 years, and people tend to believe they won't be laid off or can easily stay employed with a high salary for 30 years. They either have a short memory, or they haven't seen Bay Area tech pre-2010.

Can your family afford the mortgage if the husband gets laid off? Can wife work if husband gets laid off, or cannot find a $200k job with $50k stocks after being laid off? In that case, hopefully wife is in a different industry because if she is in tech as well, she won't be able to find gainful employment if tech isn't do well.
Net worth $1M, $600K in stock mutual funds. (down-payment monies will come from $400K cash/bonds)
"net worth" as in retirement accounts or liquid in taxable? If you already have sizable retirement savings, and after the house purchase, have $1m - $400k = ~$600k left in liquid taxable, then I would say you are fine.

edit: see that you lumped retirement savings into your calculation.

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