tl;dr: Houses are so expensive that people can't afford a down payment, so banks let people buy houses for no money down, driving up the purchase price of houses.
Some Silicon Valley Tech Workers Get Home Loans with No Money Down
41–50 of 193 posts
Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down
#42I have little interest in tying myself down by buying a house, but the part that's most appealing to me is the mortgage structure. You get to borrow money at a ~3.5% interest rate, in order to invest in something that produces 5-7% yearly returns. On average, this is going to make a ton of money in the long term. Is there any way to do something similar with stocks, without paying an insane amount of money in interes…
With a house you're hoping to just maintain equity by avoiding rent, not make 5-7% yearly returns
Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down
#43Why does someone like Zuck need a mortgage? Is it economically advantageous to him in a significant way?
Mortgage interest is tax deductible, which can be quite substantial if you're trying to lower your tax burden. The good news is that AMT comes along and typically eats up deducting property taxes and other things, but the mortgage interest itself still works.
There should be a cutoff for deductibility at some price. Let's say 300k or whatever. This would do make miracles for housing affordability.
Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down
#44Earlier quoted context omitted.
Mortgage interest is tax deductible, which can be quite substantial if you're trying to lower your tax burden. The good news is that AMT comes along and typically eats up deducting property taxes and other things, but the mortgage interest itself still works.
There's also a deduction phase-out at high incomes. (450K iirc)
$1MM if single, $500k if married and filing separately.
EDIT: see comment below. One can deduct the interest on mortgages up to $1MM and $500k, but there is a cap on itemised deductions (mortgage interest deductions are this kind of deduction) around $450k.
http://www.bankrate.com/calculators/mortgages/loan-tax-deduc...
Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down
#45I have little interest in tying myself down by buying a house, but the part that's most appealing to me is the mortgage structure. You get to borrow money at a ~3.5% interest rate, in order to invest in something that produces 5-7% yearly returns. On average, this is going to make a ton of money in the long term. Is there any way to do something similar with stocks, without paying an insane amount of money in interes…
Real estate returns are historically flat. Only recently have they risen so quickly. If the bank thought they would get 5-7% on the house, why wouldn't they just buy it themselves instead of giving you a 3.5% loan?
Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down
#46One reason: Almost half of their compensation packages are in Apple shares. So their lender, Opes Advisors, assigned the couple a financial adviser who used a software program to factor in debts and future income, including the stock, and the costs of education over the years for two young children. They don't go into much detail, but this part scares me. I'm assuming the "model" estimates some sort of future value f…
what is a "no-resource state"?
Non-recourse debt is debt for which you can't pursue the debtor beyond any collateral they originally put up as part of the deal.
http://www.investopedia.com/terms/n/nonrecoursedebt.asp
In California all mortgages are non-recourse debt.
Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down
#47I have little interest in tying myself down by buying a house, but the part that's most appealing to me is the mortgage structure. You get to borrow money at a ~3.5% interest rate, in order to invest in something that produces 5-7% yearly returns. On average, this is going to make a ton of money in the long term. Is there any way to do something similar with stocks, without paying an insane amount of money in interes…
Why do you assume housing provides a 5-7% yearly return? Past performance is no guarantee of future performance. You're also ignoring the carrying costs of a house.
Owning a home can create real returns even if the home only appreciates at the long-term inflation rate, because of leverage. With a 20% down payment and 2.5% appreciation, you're going to see a return of 12.5% on that down payment.
Of course there are monthly payments and maintenance too, but you'd have to live somewhere even if you didn't own a house. To account for those properly in calculating the real return, you really should diff them against the rent on an equivalent property. And don't forget the interest tax deduction.
Finally there is the wonderful fact that capital gains on your primary residence can be kept tax-free up to $250,000 ($500,000 if you're married).
Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down
#48One reason: Almost half of their compensation packages are in Apple shares. So their lender, Opes Advisors, assigned the couple a financial adviser who used a software program to factor in debts and future income, including the stock, and the costs of education over the years for two young children. They don't go into much detail, but this part scares me. I'm assuming the "model" estimates some sort of future value f…
what is a "no-resource state"?
Typo! I meant non-recourse.
Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down
#49Earlier quoted context omitted.
Mortgage interest is tax deductible, which can be quite substantial if you're trying to lower your tax burden. The good news is that AMT comes along and typically eats up deducting property taxes and other things, but the mortgage interest itself still works.
There's also a deduction phase-out at high incomes. (450K iirc)
Though somewhat ironically, Zuck probably isn't high income because his Facebook salary is $1 and the vast majority of his wealth is in FB shares that pay no dividend.
Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down
#50I'm confused. The title says "Silicon Valley Elites" but the article says "tech workers", then goes on to list Mark Zuckerberg and some Apple guy who's salary is apparently 50%(!) stock, as examples.
So who are these banks "courting" again? Elites or tech workers? Or just these two guys? It's hard to tell. Interesting news would be "Banks giving kickbacks to CEOs and VCs who throw them corporate business." This article seems to just be "Look! Some people are getting sweet deals on their mortgages."