Some of the comments in willizm's thread intrigued me. I was only 20 in 2008 so I wasn't in the market for a house, but some of the stories I hear about people being offered mortgages for homes that were worth 6x (or more) their annual income just seem crazy to me.
When I bought my house in 2012 I asked them what they'd approve me for if i were applying solo (no spouse) and at ~$60k at the time with a $400/month car payment, the bank said they'd approve me for a $180k mortgage (assuming minimum 5% down). That seemed reasonable to me
Well mine was pretty normal - for 2006 housing market.
We bought our townhome from Centex Homes preconstruction. Put down deposit in april06 and closed in sept06. When we were going through the loan app process, we were told over and over and over (cant type that enough), that we would be making tons of money on this place buying it in the last phase of the subdivision and preconstruction.
The guy wanted us to do a first and second loan. The second being fixed but the first being an adjustable rate. We said no dice, even though they hard sold it. I decided to put down my total money saved which was just shy of $40k. Did the 30 year fixed at like 5.25% iirc. Our credit was great and so was income, so that was prime at the time I think.
We put every option into the home that was available. The plan was to keep it and live in it for two years, then cash out my DP along with any profit. Well 6 months into the loan, thats when the market shit the bed. We scrambled to atleast refi out our dp, but it was too late. The place was appraising for about what we owed. We decided to stick it out because we wanted to break even atleast, and were hoping in 3-5 years we could.
Meanwhile we got married and had baby #1 on the way. All was well until baby #2 showed up. We quickly realized that our 2 bedroom 1 and a half bath TH with no basement or storage to speak of was NOT going to work. At that time the TH was appraised at $85k. Yep. So we owed about $180k at that time. So we decided to move out and rent, and rent it out at the same time.
Problem was people didnt want to pay $1400 for a rental townhome. They wanted to pay $900-$1100. Well we had to take it, so it was rented out for $1100. We went through 4 sets of dead beats before we had enough. Right at the same time, my contract ended for work and I was out for 6 months. We put it on the market and sold it for half what we owed. I never got my cash out, and had been covering the -$300 every month since we had left for almost 2 years. It was a nightmare that we never saw coming. We were able to dig out of all that, and make good on everything over the last two years. Now we are debt free, but still renting. We wont be debt free for long. We are going to be getting two cars and a house very soon. The only saving grace is we are now solid platinum in the credit department, and I only will need to do a 15 year mortgage if we stay in budget.