Dear Liz: I am 33 and a physician who just started working nine months ago. I have a stable job with an annual income of $250,000. My wife doesn’t work and we have one child. I want to buy a house in San Diego, where you can’t find a nice home in a neighborhood with a good school district for less than $1 million. I don’t have the 20% the lenders want for a down payment. I don’t even have 5%. I checked with most banks, and none are willing to give a mortgage without at least 20% down, even with a stable job and high income. It will take me about 10 years to collect enough money for a 20% down payment to buy a more than $1-million house. So there is really no way for me to take advantage of today’s lower prices because the banks are not giving out loans to anyone.
Answer: First, you’re wrong, and second, you’re really being obnoxious. Millions of people are out of work. Millions are losing their homes. And you expect sympathy because you can’t swing the million-dollar home you think you deserve?
It’s absolutely true that getting a mortgage isn’t as easy as it used to be, particularly if you want to borrow more than $625,500, which is the top limit for “conforming” loans — those purchased by mortgage agencies Fannie Mae and Freddie Mac. Loans above that level are considered “jumbos” that come with interest rates that are as much as 2 percentage points higher than those for conforming loans. In addition, terms for jumbo loans are tougher, with lenders often requiring sterling credit and fat down payments.
You can bemoan the situation or you can get realistic and train your sights a little lower. If you borrow less, you can lock in some of the best interest rates in a generation and buy a house with a much smaller down payment — as low as 3.5% if you opt for an FHA loan.
And yes, you can find lovely homes in nice San Diego neighborhoods with good schools for less than a million bucks — particularly since the median home price in the county has plunged to $285,000.
You live in this house for several years until real estate prices start to recover and you build equity. You save extra money on the side. Then, when you’re able, you trade up.
It’s called buying a “starter home.” Ask your parents. They’ll remember the concept. It’s what families used to do before buying a McMansion straight out of medical school somehow became a right, rather than a fluke.