Comment by ryandrake | Hacker News Reader

Comment by ryandrake | Hacker News Reader

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> > It's honestly quite scary how I'm in the top 2% of income earners in my generation and yet I could barely afford to buy a small place

> I live in Los Angeles, where a "small place in semi-desirable area" gets listed for 1.5M and goes for nearly 2M. I'm somewhere in the top 5% of earners in California, but that $2M 1950s tract housing would be >50% of my post-tax income.

I think the obvious answer here is that people in the top 2% or top 5% are not buying houses... It's the people in the top 0.1%. Last time I was home shopping, we were regularly outbid by all-cash offers of 50%-100% over asking price, no contingencies. These competing bidders are not teachers and nurses. They're not even high-paid tech employees. Do you really think a Senior Software Engineer at Microsoft has $2.5M in cash sitting in his checking account to buy a home? No way. These are all businesses, investors, serial landlords buying their 60th house, hedge funds, 0.1% wealthy people--that's who's buying all these houses. Not us.

To be fair, it's doable as a senior or staff engineer at a big company earning 300 to 500k/yr. I'm (lucky enough to be) in that range and qualified for a $1.5M loan. Combined with 500k for a down payment, you can see how those $2M houses are technically affordable. For now.

Income data always lags reality by a couple of years: in my experience, a lot of people have a lot more money than you'd think. The winners of the eight purchases I've attempted have been young dual income professional families.

I'm a senior staff engineer with 20+ years of c++ experience and I make less than 200k even after stocks and bonuses. But I live in a part of the US where that gets me an almost 4000 square foot home within walking distance to nightlife and a short bike to a downtown with highrises and art museums and orchestras and operas. The weather is horrible swinging over 115 degrees over the course of a year, but right now it's wonderful out. Redefine what semi-desirable means. Yes I'd love to walk out my back door and dig clams or pull in a haul of crabs to cook on the beach, but putting all of us on a coast won't work. Also with a couple of exceptions in the Pacific Northwest climate change will hit the coasts hard. Cramming us all into condos on those few stretches of protected beach is even less feasible. Mountains will be somewhat less impacted, ski resort areas will expand and continue their price growth. But everyone moving there isn't really any more feasible long term.

I'm under the impression that 'cash offer' just means that whoever is buying has already secured their financing. That means there's almost no risk of the deal falling through and the sale can go from contingent to pending immediately. This is better for the buyer because they sell faster. Senior software eng at microsoft can pull this off no problem (no one is buying a house with cash in their bank, not even rich people).

No, there's still a distinction. Secured financing can still fall through.

It means that they aren't using a mortgage to buy it. If there's a mortgage involved, then the offer becomes contingent on the bank's due diligence which can cause the deal to fall through in a variety of ways.

For example: the bank will only loan you money up to the appraised value of the home, which is done after the deal is signed (banks won't send an appraiser to every house you make an offer on). If the appraiser says the house is worth 500K and you bid 800K, you need to find 300K some other way (usually cash) or the deal falls through.

While it is true cash offers in the strict sense mean real cash, it may also mean no-contingency offers. You can go through mortgage underwriting first and commit to pay the gap between appraised value and deal value, and can make a no-contingency offer with minimum risk. Or, if you are willing to lose your deposit (usually 3-5%) you can also make a no-contingency offer to be more attractive.

> You can go through mortgage underwriting first and commit to pay the gap between appraised value and deal value, and can make a no-contingency offer with minimum risk.

Of course, but unless the amount you commit to bridge is unbounded, you're still contingent in appraisal price. And if you did commit to that, you're just making a cash offer with extra steps.

Deposits in my experience are token (around 2%). And usually sellers will verify that you have the cash on hand for no-contingency offers, since 2% is not worth waiting and then redoing the house selling process.

At least in the SF market what matters is a financing contingency, not all cash vs mortgage. As long as you go through underwriting first and get full approval (not pre-approval) an offer with a mortgage and no financing contingency is 99% as good as an all-cash offer. Sellers are not impressed by cash offers anymore unless they're the high bidder... in which case it is the high offer not the cash nature that matters.

And lenders that work in SF understand how this works and indeed can go through full underwriting without a property having been selected. Appraisal is the only thing that might matter which is why it is a good idea to hold back some cash.

Your impression is wrong. "Cash offer" means there is no 3rd party loan involved. Obviously, if someone's aunt is lending the buyer money, nobody is going to catch that. But "cash offer" absolutely does not mean "secured financing".

It means they have cash in a bank account ready to go. Maybe they took out a loan against other assets to obtain the cash, but a "cash offer" is literally the person is handing over a cashier's check at closing.

This means there is 0% chance of the deal falling through. Not almost no risk, none at all. Failure to follow through with the deal would be breach of contract and the buyer is liable for damages, up-to-and-including, being forced to hand over the money for the house.

No, cash offer means actually pay it cash. If there's any kind of financing involved, the bank will need to approve the purchase, slowing down the process, which is what a cash offer bypasses.

> no one is buying a house with cash in their bank, not even rich people

They most certainly are. Tons of real estate sales here (Silicon Valley) are all-cash because the other people making offers are also all-cash, so the only way to make a competitive offer is if it is all-cash.

So regular people who need a mortgage are completely shut out of the market.

> If there's any kind of financing involved, the bank will need to approve the purchase, slowing down the process, which is what a cash offer bypasses.

That's not "already secured" then, is it?

Correct. But the point was that if you're getting financing from an institution, there is no such thing as secured, before they evalute the house and the offer.

As I noted above this is not really true anymore. My agent told me flat out that sellers (read: seller's agents) are not impressed with all-cash offers anymore. As long as you make a no-contingencies offer that's plenty good enough. They might ask if you have a 5-10% reserve just in case the appraisal comes in a bit low but in the three offers we made that never came up, even against other buyers offering all cash.

Getting a mortgage approved was also easier than I expected; when you move into Jumbo territory and have more than 20% cash to put down the bank seems to assume if you were industrious enough, lucky enough, or connected enough to come up with $500k, $1m, or whatever cash then you're probably good for the loan.

They also counted unvested RSUs as assets at a slight discount to the average stock price (I think it was the previous 90 day average?).

> no one is buying a house with cash in their bank, not even rich people

That's how I bought my house, and I earn less as a solopreneur than many FAANG employees in this community. My "cash offer" came with the standard proof of funds: a piece of paper the local Wells Fargo branch printed for me on their letterhead that said I have an $X balance as of that date, where $X was greater than the price I was offering for the house. I walked into the same branch and wired that cash to an escrow company a few days before closing.

> Do you really think a Senior Software Engineer at Microsoft has $2.5M in cash sitting in his checking account to buy a home? No way.

It's not common, but definitely possible. E.g. if you were part of an acquihire. Or just got lucky somehow. I know a senior with a crypto portfolio worth more than that because he dropped a few thousand into bitcoin in the very early days.

Agreed with your analysis, and add previous homeowners who can sell quickly and are making the cash from the equity.

You don’t need a lot of there is only one decent house a week for an entire metro of 2-3m people somebody has a rich uncle, a heloc or some windfall earnings they can lean on to make it happen

but what about all-cash mortgage lending services and margin loans?

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