TANKs BLOG : buying your first house

So the wife and I are house shopping. We live in a market that's gone into the shitter so houses have actually dropped a significant amount. We're considering making an offer on a house that's dropped to 550k from 850k, that's quite a drop and it's not a unique story either. We've been shopping for a house for 6 months now watching these big 800k houses drop down over time to 500k or less.

I've always said since moving to NorCal 10 years ago that houses here were way over valued and as the prices kept climbing, middle class people could no longer afford them so banks started throwing money to people to help them afford a house they can't and now bam, those people can't pay. Was totally no shock to me that the situation in the housing market is what it is. Now it's time for us to make our move, houses have returned to a somewhat normal cost and given that we've both been at our jobs for a significant amount of time and make decent dual income money with decent credit scores, we shouldn't have too much trouble buying , and it's a buyers market.

Seems like with dwellings, we've rode the wave right for a change. We moved here during a landlords market, then put up with that until it turned to a renters market and moved to a bigger cheaper place, then now we're looking at buying in a buyers market. Gotta take advantage while you can i guess :)

Anyway, the thought of a mortgage of half a million dollars makes me queezy. Relative to california, this is actually a fairly reasonable cost but the median price for a house in the USA is like 250k. So its' like do we move? Do we buy? I dunno. I was reading an article that houses are continuing to become unaffordable to the middle class as the decades roll on. Back when our parents were buying their first house, the % cost of a house relative to wage was a lot less than today. Housing prices have continued to rise but wages have fallen way behind the inflation rates of houses. So like 30 years from now when we try and sell the house and retire, are middle class people not going to be buying houses? Or will middle class houses retract from 2000sqf monsters to 1000 sqf cheaper to produce houses? Will there be a market for the 2000sqf houses in 30 years due to their cost? This stuff makes my head hurt thinking about and at risk is the half million dollars we'll be putting up!

The one saving grace is this house is a big split level witht he bottom floor absolutly perfect for renting out. It's about 700sqf of living space with two doors of it's own and an inground pool. So we could rent that for 1000-1200/month right now since it's a landlords market so the out of pocket for the mortgage wouldn't be much more than that. So basically the renter would be paying half the mortgage which is good and we hvve someone lined up to rent already, a windowed lady we're friends with.

It just is nuts, i never ever thought i'd be in debt half a million dollars. It almost makes me sick thinking about it.

Oh and then there's the down payment to deal with. I've got that kind of money tied up in 401k investments. So i have to figure out how to get it out without getting penalized up the ass and it's impossible. If i loan myself the money, it gets paid back through post-tax wage garnishment basically. So depending on your tax bracket, say you're 30%, for every 100 bucks you pay yourself back, the government takes 30% of that in taxes. But i don't have to pay the 10% penalty if i take a loan so that's good i guess. The other way is to take an outright draw which if you took 25k out of your 401k, your income basically increased for the year by 25k which could put you in a higher tax bracket and you may need to pay a higher tax % on your entire years worth of wages come tax time. Plus you get the 10% penalty hit which sucks too. So either way, getting your money out of 401k is a bend over and take it sideways. Plus if you loan yourself the money and leave your employeer, you have an employeer set amount of time to pay it back before it's considered a draw and it's as if you took it as a withdraw instead of a loan (taxes and penalties apply). I hate where i work and the thought of being stuck here for 5 years because of this adds to my reservations. But i guess i'd try and get a bank loan to pay 401k back with as soon as it was possible to do so. I think paying the back back 6% or whatever over 5 years is better than paying myself back with 5% interest plus taxes the 401k loan program imposes.

EDIT : Someone wanted to see what a half million dollar house looks like in NorCal (although keep in mind this house started out at 800k and has dropped). So here is the one we're considering putting an offer on. It's ugly as fuck on the front but the back is nice and backs onto a hill that's parkland at the top so noone behind us ++++