Downpayment and loan for houses 1.5 M and up

[irvinehomeowner]

@Irvine Dream:

Just pull the trigger and live by me.

 

[Perspective]

Well, at these $1M+ price levels, and the types of households that buy them, the DTI calc is just a snapshot of any given moment in time. They'll have years when they receive large bonuses, or sell a large amount of stock, and their income far exceeds their salaries. They'll have years when one spouse isn't working. Their DTIs could fluctuate greater than ten percentage points over a decade.

A related question you rarely hear, is what is a reasonable percentage of your net worth to put into a downpayment? It's a fair question when you're buying a $1M+ house.

It also depends on your investment risk tolerance too.  I don't want to be house rich and cash poor.  Rates are so low that you should borrow as much as you can and keep as much liquidity as possible.

Optionality is valuable. It's one reason I briefly considered a 90% LTV loan with a quarter point premium. A 3.75% mortgage rate for a household earning $200K+ is a low 2s effective rate considering IRS/FTB taxes (at least on the first $1M of mortgage indebtedness). It's hard to imagine inflation alone failing to average 2% minimally over the next decade and beyond.

 

[irvinenative]

Ha. There coulda been a TI street in Arcadia. We almost bought there too. I was ok with the tiny lots but not the price. My other half was ok with the price but not the tiny lots.  We were both not ok with the buyer makeup - at least in the early phases.

That was another concern.

hey whats wrong with the buyer makeup! i would say that over half of the people living on my street are NOT fcb's, including myself. come live in arcadia and that way we can build the non-fcb community! =)

 

[usctrojancpa]

Well, at these $1M+ price levels, and the types of households that buy them, the DTI calc is just a snapshot of any given moment in time. They'll have years when they receive large bonuses, or sell a large amount of stock, and their income far exceeds their salaries. They'll have years when one spouse isn't working. Their DTIs could fluctuate greater than ten percentage points over a decade.

A related question you rarely hear, is what is a reasonable percentage of your net worth to put into a downpayment? It's a fair question when you're buying a $1M+ house.

It also depends on your investment risk tolerance too.  I don't want to be house rich and cash poor.  Rates are so low that you should borrow as much as you can and keep as much liquidity as possible.

Optionality is valuable. It's one reason I briefly considered a 90% LTV loan with a quarter point premium. A 3.75% mortgage rate for a household earning $200K+ is a low 2s effective rate considering IRS/FTB taxes (at least on the first $1M of mortgage indebtedness). It's hard to imagine inflation alone failing to average 2% minimally over the next decade and beyond.

Agreed, inflation is at least 3% a year so why not let inflation eat away at the real mortgage balance.  On the margin, I'd put a little extra down to get the lowest rate especially if it's on a $1m+ mortgage.  As you said optionality is valuable, but the value varies from one person to another (aka a more risk averse person values it less than a risk neutral person).

 

[irvinetalker]

There are some niche low down payment non-conforming loan amount programs out there, e.g., Doctor Loan offered by Bank of America, Wells Fargo, and others (for Bank of America it's 95% LTV up to $1M and 90% LTV up to $1.5M; one applicant needs to be M.D. or D.O.). Sometimes the regional lenders in particular will be more flexible. It never hurts to ask.