Opportune Time for Buyers.

National Association of Home Builders comments on the current market, both for new housing and existing homes. Prices nationally --and locally -- have returned to the 2003 levels. NAHB believes there is price stabilization in many areas of the country. Future household formation--which has slowed in the current economy--will eventually demand more housing. This is the "opportune time for buyers" because buyers who are motivated to buy and are qualified at this time should take advantage. Los Angeles County, though experiencing fewer sales than one year ago, has not lost in the median price point of a single family homes since one year ago: Year-to-date in LA County the median price of a single family home is $340,000, Click on the video for more on housing market conditions currently.

When Is "Diving" into Lease Option a Good Idea in Southern California?

Sometimes I'm asked about the possibility of a lease-option as a way to buy a single family home.

Lease-options were used extensively with commercial properties in the past and have also become a method for purchasing a single family home in the residential market.

They work best when: 1) the owner wants to sell but does not have to transfer title right away; 2) or the seller may need continuing cash to pay fthe mortgage, 3) the house may be vacant or will soon be because the seller has already moved on, 4) the money from the sale is not needed immediately by the seller, 5) and, very important, the seller has equity in the property or has other income. When a seller's market is slow and a house with equity in it is not selling, a seller might consider this scenario from a renter/buyer.

There are advantages for both the buyer and the seller in this arrangement.  It's also important to use a good lease-option agreement which covers, among other things, the percentage of rent credit towards the down payment, the date by which the sale will close, and other clarifications concerning who is paying the taxes, who is maintaining the property (usually the seller), agreement on the final sales price. Tenants in this situation are more likely to treat the property very well since they see themselves as the future owners.

An advantage for the seller includes retaining the income tax deductions and having good tenants. The advantages for the buyer are getting into a house for little money up front (the amount is negotiable of course),  building up a rent credit towards a down payment, trying out the neighborhood, still having time to shop for the best mortgage or interest rate, and the possible benefit of the price being locked in if the value goes up.

The buyer must first find out what the seller's circumstances are, which a Realtor can definitely help out with, before spending time on making lease-option offers. In many neighborhoods, short sales are about 50% or more of the local market and many if not most of those properties will not have a seller who will be able to rent out the house at local market rent because their mortgage payment may be much much higher, and they do not have either the desire or the ability to carry a negative cash flow.

However, if an equity seller can wait 6 months or even a year for the buyer, it might be worth the wait.

For some additional explanation, see this general article about lease-options.

If You Got a Home Loan From the Bank, Are You Its Client?

No. You're the borrower. And as the borrower, you voluntarily took the loan from the bank, and according to the usual circumstances of an arms-length loan transaction, there is no fiduciary relationship.

However, Bank of America's investors, for example, include Pimco of Newport Beach, TCW Corp. of Los Angeles, BlackRock, Inc. of New York, and Federal Reserve Bank of New York. Bank of America has about 500 investors, all of whom it may owe a fiduciary obligation because of their investment/purchase of funds. Banks in these cases are the servicers for these investors, with whom they have agreements or contracts. Those contracts are known as PSA's, Pooling and Servicing Agreements, which guide the specific demands made on loan modifications or short sales requested by the borrower. It may not be easy to find out the exact terms  in those agreements, and in fact, it's often difficult to find out what investor holds the note due to the use of MERS in the last few years. But those servicing agreements spell out the relationship of the Bank to the investor, and ultimately, the course of your short sale or loan modification request. The servicer may actually have leeway in negotiating for the investor, but if the investor is able to accuse the servicer it did not act in the investor's best interest, the servicing bank could have a lawsuit on its hands. So you might be told the "investor" is making demands, but is that really the full story?

The banks/servicers frequently require the use of their bank addendums to be added to Realtor contracts--adding another layer to interpret in the transaction.  Here is another use of the term "fiduciary"--On a recently published Purchase Contract Addendum by Wells Fargo in July/August of this year, the following language definitely confuses the issue: "It is the Brokers’ fiduciary responsibility to present the highest and best offer to the servicer." To be very clear, 1) the seller's broker has a fiduciary duty to the seller, not to the seller's bank, and 2) offers are presented to the seller, not to the bank. The "highest and best offer" (and the best offer may not necessarily be the highest price) is presented to the seller, who ideally accepts an offer when it then becomes a contract, which is than submitted to the bank for its approval to accept less than the outstanding loan amount. Naturally, the bank is interested in recouping as much money as possible, but the issue of fiduciary relationship--the person to whom you owe the greatest care--is clearly laid out for brokers in agency law, and that person is your seller if you are the listing broker, not the bank. The broker cannot be the servant of both because the broker already has a contract (the listing agreement) with the seller who owns the property, not with the bank--or investor--which owns the note.

Sellers would like a clear, black-and-white outlook for their property, and it's rarely easy, and full of complications. It's very important for the seller to read the letter issued by the bank when a short sale has been approved--the seller should not assume the bank is issuing language that is completely in the seller's interest without taking the time to examine it, or have it looked at by a tax or legal advisor!

FICO Scores May Mean Savings on Monthly Payment of $200

Many buyers, and property owners who want to refinance now, realize that FICO scores are important when it comes to getting a loan. But what exactly is the picture on the benefits to a higher score, and what kind of a difference will it make? Below is a general chart for score categories and interest rates.

The sample breakdown below may not be exactly like this because a borrower's other circumstances with a particular lender or a particular program could vary, so it's important to keep that in mind. But oftentimes prospective borrowers are not aware of how their decision to buy one more piece of furniture, or buying that new car, BEFORE closing escrow, may strongly impact their new monthly payment because they have added more debt.

30 year Fixed Rate Mortgage - $200,000 Loan Amount

FICO Score                APR              Monthly Payment

760-850                     4.466%          $1,009
700-759                     4.688%          $1,036
680-699                     4.865%          $1,057
660-679                     5.079%          $1,083
640-659                     5.509%          $1,137
620-639                     6.055%          $1,206

Chart courtesy of Pat Zaby

For more information on how debt and other credit issues can impact your credit score, I can forward you my Powerpoint presentation.  Also, go to http://www.myfico.com/ for objective information about credit scoring and obtaining a free credit report.