Spent Easter in Santa Rosa with Mr. BTs family. When we arrived, we were heralded with the exciting story of how his brother had just put in an offer on a home (REO). They have been prequalified and have been at this for a couple weeks. The most recent offer, was on a bank REO for 299k.
He and his wife, and their 5yr old, aren't too hopeful because investors keep beating them out with all cash offers. Strangely enough, their reason for purchasing is because there aren't many rentals available (and their current rental has the sewage all backed up and the LL won't fix it).
Now I imagine Santa Rosa is more expensive than Sacramento. But I also know that as a county maintenance guy and an office worker, it will be rather tight making payments on a home for 299k.
Of course I think they should wait. But I held my tongue through all this, as the offer is already in........ so what is the point?
The part that confounded me was the fact that they speak of all these investors competing with them for the same homes. So how can there be no acceptably priced rentals? I suspect its a combination of their RE agent pumping them with slanted info, combined with their own interest in purchasing rather than continuing to rent (seeing what they want to see).
So what would you do? I'm certainly not implying I have all the answers. But neither of them have a college degree, and I am worried they could easily be taken advantage of. The overwhelming desire to "own" a home has gotten a lot of first-time-borrowers in over their heads. Most trust that their agents and lenders have their best interest at heart. Even Mr. BT and I learned the hard way, that this is rarely the case.
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I don't tell people not to buy anymore. If they are happy I am just happy for them and hope it works out. but I'm not buying yet.
I'll wait for most of the investors to find something else to speculate in. Until then, let them set the new comps each month.
The only advise I give people now is to make sure they get a fixed rate 15 or 30 year mortgage. No I/O, Option Pay, or other products like that. Get a fixed payment that wont change for the life of the loan so you always know what you are paying.
I am the same way with folks I meet that I don't know very well. But this is family. So I feel a bit more concerned for their financial well being. (I'm also a bit worried it may impact us if they ask us for money....which his other two siblings have done in the past 6 years).
From what it sounds like, they've already made their decision, so I would just be supportive.
I'm in this position all the time, and you really have to weigh your desire to help them with the chance that your advice could be taken the wrong way. My rule of thumb has been, if people are already in the process of buying, they're way past the point where advice from me will make any positive difference. At worst, they could take it as criticism of their decision or meddling in their personal business, and you could damage the relationship.
I say, if they're already putting in offers, they've already decided what they want to do. Offer advice only when asked, and be supportive at all times.
I don't think college educated has much to do with being taken advantage of. Street smarts are not learned in school.
You just can't tell people what they don't want to hear, and besides you might be wrong.
I usually share my opinion and leave it that. Then they can add that to the 100 different pieces of information and make a decision.
My BIL & SIL have more street smarts than many college educated folks I know.
Unfortunately many of the folks I know who are not college educated, no matter how smart, are more inclined to second guess themselves when it comes to dealing with professionals who are(such as RE or mortgage brokers etc). They tend to let their lack of a college degree, get in the way of their better judgement.
Sounds like the consensus is to stay out of the way unless asked.
People can usually tell if you support their decision or not, just by your reaction or lack thereof. If you usually ask a lot of questions and you are silent that is a key too. This has happened to me.
Since you may not be familiar with their market, one bit of interesting information would be their current rent versus the price of the home they bid on (especially if they would be considered comps). So, if this deal falls through like the other ones that go to 'specuvestors', then you may find an opportunity to talk numbers like rent/buy advantage/disadvantage - just a thought.
"I know who are not college educated, no matter how smart, are more inclined to second guess themselves when it comes to dealing with professionals who are(such as RE or mortgage brokers etc)."
I'd venture a guess that many a RE agent or broker is not college educated.
PR - you are likely correct.
AB - on the college ed thang... you put way too much weight on this. Like where the PHeD got us? I find our educated population is more gullible than ever. (just for creds, I have an advanced degree cum laude, BFD!)
Your BIL, as a Santa Rosa maintenance worker, likely makes more that you if you are a privately employed MBA here. $300K is CHEAP there, much less supply and building, more highly restrictive, more expensive construction costs, etc. etc.
kince he works for the city, I'd be less worried about buying a house and more worried about job retension.
Fr what it's worth, 290k is even too high for us. For us to go to 290, that had better be a huge house in excellent condition in a great neighborhood.
Now Sippn I really try not to take your bait....but sometimes I have to smack back....
"on the college ed thang... you put way too much weight on this."
I did? I'm the last person I know to presume a pedigree means someone is smarter or somehow better than the next person. The majority of my relatives do not have college degrees. They are the ones who wrongly attribute some sort of mystical power to it, as much as I try to convince them otherwise.
G - I think 299k is way to much for them to spend as well (not knowing anything about their finances...although I don't think they have any downpayment). One thing's for sure, its way more than we paid for our first home.
Since you're not aware of their exact incomes, they may simply scoff at advice you give knowing that you're in the dark about their financial state.
This weekend, while at an Easter brunch with some friends, we discussed our home buying adventures with some older couples. They rolled their eyes at the numbers were were crafting and you could tell that they thought we were in over our heads.
We, on the other hand, took no heed to their advice, because we knew that our salaries (even though we're 10-15 years younger) trumped theirs by a significant amount.
Your relatives may take your advice the same way.
Some aquaintances are closing on a house now. I showed them how to lookup info on homes online and they found a nice one. I told them to make sure and get a fixed rate which they did.
They are getting a nice home in citrus heights that they like, was a REO, needs a lot of work, but the husband can do that work himself to save $$.
House was $180k and their payments will be less than their current rent which the LL tried to raise by like $400 (which would be about 50% increase lol).
So it may just work out well for them. And they plan to stay for a while.
On the finance side, I think it is impossible to offer any real advice to them on affordability, unless they ask you for advice. People are going to make their own decisions, and write off your advice as coming from someone who has no idea about their financial situation. They may also get offended.
But I think a comment about mortgage terms would be appropriate - perhaps couched innocently as "Oh, can you believe all those exotic and risky mortgages that people got themselves into? It's such a shame that so many people got in over their heads because they didn't understand the risks of their mortgage." Something like that. I think that may be a bit of a warning to them, and hopefully open up the conversation a bit more. At the very least, their reaction may give you a sense of how clued in they are about what they are doing.
My 2 cents anyway...
BT - I'll rebait the hook another time.
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