If you aren’t ready or if you don’t think you can afford it, don’t buy a house. I almost made that mistake back in 2007 when I had an offer accepted on a home in Marinwood. I was excited about the prospect of owning my first single family home, but I was very uncertain about my ability to pay the mortgage. That was right as the bubble was bursting on the real estate market and mortgage brokers were doing stated income loans. If I bought the Marinwood house I would have lost it to foreclosure, there’s no question in my mind.
Back then mortgage brokers would approve sole proprietors like myself with stated income loans where they didn’t verify income. I had good credit and I didn’t have the income history to purchase a $729,000 house but the mortgage broker had approved me. All he needed to do was fill in the right stated income number on the mortgage application, have me sign that I expected to make that much money, and I could get a loan up to any amount. It wasn’t long after that before I started working with short sales and foreclosures resulting from loans exactly like the one I almost got into.
The deal broke down over the condition of the sewer. The seller didn’t want to give me a credit for it, I felt like it was going to need fixing, and didn’t have the $10,000 to do it. We cancelled the deal and the seller still owns the property 13 years later. It was a blessing in disguise, and my spider sense was tingling the entire time. Meanwhile someone I respected and admired in real estate was trying to convince me to buy the house.
He borrowed the rationale for the purchase from some real estate guru who believed Realtors should max out their borrowing capacity. Buy the expensive car. Take on a large mortgage. Push yourself! You will rise to the challenge. It was a way to inspire greatness. I thought to myself, ‘I really don’t want that kind of pressure in my life.’ Plus if I failed I would lose everything I had. Lots of people, including Realtors I knew personally purchased homes they couldn’t afford and lost them.
Despite the fact the market had begun to turn south I still would have been okay buying the house if I truly thought I could afford it. I think it’s smart to pay a bank a mortgage, develop and ownership stake and get a tax write off instead of pay a landlord rent and only get shelter in return. Lots of people are in that situation today. Rents are so high and interest rates so low people in the Bay Area should consider purchasing homes as long as they can afford them.
Back when I purchased my first condo in 2000 the seasoned Realtor who represented me told me real estate prices in Marin never go down. I was highly skeptical of the claim. When I began selling real estate in 2004 I verified the market in Marin followed the rest of the country by turning sharply downward in the early 1990’s recession. However, the trajectory of the market in the long run has always continued to rise. So if you find the right house I wouldn’t worry too much as long as you don’t fall for fairy tales about the housing market never going down and you don’t feel like you need to meet other people’s unrealistic expectations.