Considering Buying A House In California? | Student Loan Planner

The three most expensive
real estate markets in the country right
now are one, San Jose, two, San Francisco, three,
Anaheim, four, Honolulu, and five, San Diego. That is a little bit
of a concerning trend. What do you notice about four of those five most expensive cities? They’re all located in California. Why is this an issue? Why does it make me worried? Well, I focus on helping people with large student loan balances live financially successful lives through making student loan plans for them at That’s what we do but the
problem is is if somebody’s making a bad decision in the other parts of their financial life, it
influences them as the borrower and that’s what I care about. Now California is a place
where there’s a lot of people with a lot of student loan balances. Living expenses are very high. There’s a lot of different
programs out there. A lot of the different
occupations in California have far more stringent
educational requirements than other states, so people
have to get more credentials to be able to practice there. So all of these different
factors compound into California having a very high number
of student loan borrowers with very high debt loads. What’s interesting about
that is those people with very high debt
loads will then go around and try to buy a house, which makes sense. The problem with California though, is we just had this change to
the underwriting guidelines with Freddie Mac and Fannie Mae. And now what they will do is just consider your student loan payment,
income based payment as your payment that you have to make even if you have three or
400,000 of student loan debt. So they will say, okay, this
three or $400 a month payment on income based repayment is
what you actually have to pay and we will lend to you based
off of that being your payment instead of the way it
used to be which was 1% of the total balance. So in that case, you would
not be able to qualify for a mortgage. With these new underwriting guidelines, you can qualify for one. So in California, people
are having to reach to afford a home that’s
even reasonable at all because California’s super expensive for a variety of reasons. Of course, it has really good weather. We know the reasons why people
want to live in California. They have a good job market as well. There’s a lot of tech
money floating around. A lot of private companies
worth tons of money. A lot of workers that are
getting crazy high stock options that are giving them tons of
cash to buy real estate with. So we know the reasons
why California real estate has been scarce for supply reasons. Also with zoning laws,
California is one of the most extreme in the country
for limiting the supply of new real estate
construction which obviously forces prices upwards. And there’s a lot of evidence
that this is kind of done at the behest of property
holders that currently have property because they want
their values to remain high and then continue to increase. The reason why I’m concerned
is I had a case recently of a student loan borrower
who basically said, I have to buy this piece of property no matter what the price. This borrower was a high
income medical professional. She wanted to pay basically
any price for this piece of property in California. And I realized this is the
kind of psychology that happens in a market right before
you have some sort of major correction. So I’m not saying that
there will be a correction in California real estate. I’m just saying that there’s a big risk that there could be one. If you look at California
relative to the rest of the country, the income to
payment ratio in California, in other words, the
amount that you’re making relative to your payment, it’s one of the worst ratios
in the country right now. It’s like 40% of your income
is going to mortgage payment and overall and in certain
cities, that ratio is even worse. Now if there’s enough
rich people to buy houses then you know, it doesn’t
matter, right in theory. The problem is you just
had the new Tax Cuts and Jobs Act come out that
limits total deductions for state and local property
taxes to only $10,000. This used to be fully
deductible and a lot of people in California are going to
get slammed when they realize their $50,000 property tax
and their $100,000 income tax is no longer going to be deductible. So I see that what you’re
gonna see is potentially the bottom end of the
property market in California might hold up okay. But that house in the
500,000 to $2 million range could really get hammered. So I just want people to be very cautious. If you can buy a house in California for less than two times your
income, then go right ahead. I’m not really concerned
about folks that are buying at a responsible price. Even if that price goes down,
assuming that your gonna be in the home for more than five years which is the only reason you
would buy a house anyway, you will be okay. But if you’re buying a house
and reaching to afford one at three times your income or more, you could really get hurt
in the next California real estate crash. So be very careful. Of course if you want a student loan plan, if you have a lot of student loan debt, you’re thinking about how that
impacts you buying a house, we’d love to make a plan for you. Just visit Click on the hire us page. You can read about the details of how we make plans for people. Thanks so much and be careful about buying California real estate.

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