Hah. I'm not that nuts. Even a 6% IO[*] on 245k is ~ $1225/mo and I don't know what property taxes are, but they are low in CA and you'd pay $3200 in my neighborhood on a house that size. If you didn't have insurance, and it wasn't a condo with HOA dues, that's most of his money. FWIW, a conventional P&I @ 6% would be $1468/mo, adding another $3k/yr cash flow drain.
[*] The best I've seen lately is about Prime minus 1% ...
For giggles, here's the tax situation. For a nominal $13.50/hr 2000 hr/year, that's a W-2 of $27,000. He'll pay $1674 for FICA and $391.50 for Medicare. With the standard deduction of $8450, he owes $2379 in income taxes (about 16.5% total [FICA+Med+Fed] tax burden) without buying a house. He's got $11.27/hr in his pocket after taxes. If he's like me when I was his age, half of the $1880/mo can go for housing and the other half can go for beer.
He can save when he's dead :-)
[ In 1985 I was splitting a near-campus beat-up-but-servicible 2br for $800/mo, and I think I have friends his age who are sharing "cosy" places for $1200 now ... you tell me: what do the kids pay for housing in your neck of the woods? ]
But let's say he buys this house with the mortgage they give him. Paying $14,700 in interest last year brings his deductions to $18k and his tax to $946. If the property tax rate there is 2% (probably higher!) he'll pay $4900 for that. That takes his deductions to $22,900 and his income tax to $383 (about a 9% total; not sure what state taxes are like for y'all).
Total cost: $22,048 of which $1996 is a subsidy from the tax man. That's a net $2.47/hr into his pocket -- about $100/week for beer and chips, call it $411/mo.
So I'd say they are off the rocker, but not completely batshit crazy. Maybe he could get a roomate for $600/mo and drink imported beer.
/jordan
ps: yes, I can see Marin from my window :-)