Financing Options in Southern California

About 25% of buyers, especially first time buyers, are reporting in a recent survey by HSH.com that they are having trouble with accumulating funds for mortgage down payment.  Another 25% say the price of the housing market is slowing them down, keeping them from buying.
The actual breakdown as to the biggest hurdles to home ownership in this survey where the respondents were given these choices: here is how they responded:

• Credit score: 12.8 percent
• Home prices: 23.5 percent
• Property taxes: 7.3 percent
• Down payment: 22.9 percent
• Interest rates: 12.6 percent
• No issues: 20.9 percent

(The last category is interesting, because it's made up of predominantly female respondents who said they had no problems at all, and 29% of this category were also older buyers over 60.)

What is often not in the minds of people is how they can eliminate some problems with saving money for down payment if they're willing to eliminate expenses in their lifestyle.  This may be unthinkable, but yes, it should be done.  Why should a very well-off national/international coffee franchise be continually supported by you when it is not returning the favor by contributing to your down payment?  The point being that the daily disappearance of a few dollars is not thought of on an annual scale, but it makes a difference.   For instance, Chipotle is a place I love for lunch.  Even if I just buy my favorite steak bowl there, with no drinks or chips, it's now $8.07 including tax because they just had another price increase.  Let's say I go there 5 times a week:  $40.35 x 4 = $161.40 month x 12 = $1936.80 a year!  Just do that same calculation with your favorite lunch place and see what it adds up to.  You can do the same with weekend food, breakfast restaurants, or whatever. I love to select restaurant/dining out food as an item for economizing, because there's more opportunity to control it by eating at home more often.

If you are approved to buy a $450,000 home, your FHA downpayment will be at the rate of 3.5% (plus upfront MIP costs which can be folded into your loan amount).  That's $15,750 for the down payment.  Could you get there faster by figuring out where to economize?  This is the part where you priorities get prioritized if you want to buy.  Gas prices and student loan payments are non-negotiable areas, but there are many personal choices which can be changed and deposited into an interest-bearing account for the future!

It's the end of 2013, and time to get ready for 2014

By now you may have heard about the lack of homes on the market, and how many buyers are competing with each other.  This is not only in California, but in many markets nationwide. 

So what are the reasons for buying now, in spite of this?

• Even though the total sales for 2013 is about 2.1% less than the 2012 level of California sales, the median home price has increased statewide by 28% over 2012, at $408,000.
• A percentage point increase in interest rates, from 3.5% to 4.5%, further reduced affordability.  In spite of this, interest rates are still at historic lows, making a buy in 2014 still important to pursue, because a half percentage point fluctuation in the mortgage rate changes the payment by $100 per month on a median priced home of $415,770. Most of the predictions for 2014 put the 30-year fixed rate mortgage at 5.3 percent.
• New lending rules are going into effect January 2, 2014, which will raise the cost of borrowing because of the new ability-to-repay rule and the new definition of a qualified mortgage are raising the cost of originating home loans.

What is in the buyer's favor right now is that these conditions, starting in the Fall, have helped the market cool off a little, with some houses sitting on the market for a longer period of time.  Make this your opportunity to try again, if you weren't successful the first time.

Please contact me for more information about the area you are interested in.  If you are using certain online "databases" to conduct a home search, keep in mind that some of these actually use properties that are not really listed, they may be a for-sale-by-owner, and that at least one site that many buyers think is a public database, is actually a real estate broker to which you agree to certain conditions when you use their site (Redfin).  To easily search properties that are active listings and are not stale, please go to Long Beach Homes and Condos.

Renting vs. Buying a Home in California Today

Each region has it's own market, and here are some interesting comparisons around California for buying vs. renting.

A prospective homebuyer needs to think about total costs and expenses of owning a home--these include the principal and interest on the monthly mortgage payment, home insurance, property taxes, home improvements and repairs. Don't forget--tax deductions on mortgage interest and property taxes are among the savings that you will benefit from, plus other tax deductions as allowed in the owner's particular situation. Renters are basically concerned with costs of monthly rent and renter's insurance.

Is owning for everyone? Perhaps not, depending on the individual's desire to maintain a property, long term financial abilities, and short term or long term job relocation factors, and the fact that in some areas, renting may be a lower monthly expense.  But when the long-term view is taken, owning a home offers long-term security and financial return over time.  Whether you rent or own, you're paying for the home, but when you rent, you're buying it for your landlord--is that really what you want?

Today's interest rates are still low, around 3.75% for a conventional loan under $417,000 and even lower  for FHA loans.  In today's buyer's market, we're hearing lots of complaints about buyer competition especially in lower price ranges.  While each local market varies, so far this year, housing inventory is up compared to 2011 and 2012, so buyers need to "hang in there" and not give up, because this is still one of the best cycles in which to become a homeowner!

Do you want a more detailed explanation of your rent vs. buy scenario? Please contact me for a buyer's estimate sheet, and for additional market report information, go to my Market Trends page.

Buying or Renting--What's Best for You?

What should buyers be considering BEFORE they buy?  Looking on the internet gets people into the initial stage of exposure, before they even call a REALTOR.   Most people think the property viewing stage is fun, both on the internet and in person, and it should be enjoyable.  But what about the advance homework?  Internet photos and marketing can get you hooked, but it can also be a nervous, even fearful time, coming to the decision to submit an offer when you're new to the process. Even if you're a repeat buyer, buyer's remorse or indecision will have far less impact if you think over some things in advance, and consider now what your fears may be (it's not unusual to have a few).

Sticker Shock:  Renting might be cheaper than owning -- do you have a mortgage pre-approval with estimated costs before you go out and look?

Home Maintenance: Are you prepared to spend time on painting, fixing leaks (or hiring someone), mowing a lawn, saving up for a new roof? Do you know how much it will cost to heat that pool every month--or just keep it clean? And then there's annual insurance premiums.  Just some of the things to think about.

Have you checked out all utility bill costs for a house vs. your one-bedroom apartment? It would be a smart thing to do now. 

When Am I Able to Buy Again?



Seasoning Requirements
 

The distressed property market began some time ago, and some people are beginning to wonder when they will be able to buy again.

Credit scores are important as well, depending on how severe the situation was and how long it will take to recover.

This is meant as a general guide only. 

For instance, if your short sale closed escrow in September of 2009, you could be eligible for an FHA loan, depending on your other loan criteria of course.  IF you have certain extentuating circumstances and were current on your mortgage at throughout the short sale, you may not have any waiting period for a new FHA loan.

To obtain a conventional FNMA loan, your waiting time is as early as 2 years after a short sale closed if you have 20% down payment.  And, for a FNMA loan, IF you can show certain extenuating circumstances, your wait might be only 3 years after a foreclosure.

Bankruptcy is one of the most damaging events to your credit, but if you work diligently to restore your credit as soon as possible, your wait could be much shorter in order to buy.  Paying bills on time and getting new credit established, perhaps by obtaining a secured credit card, are essential to improving your status as a good loan risk, according to John Walsh of Total Risk.

Please contact your lender (or I can refer you to one) for circumstances about your particular situation, because it may vary somewhat from the information here. Please contact me--I want to help you, even if you're not able to buy now.

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.

Buying a Home is An Opportunity to Leverage

Often when prospective buyer(s) think about making the change from being a renter to a homeowner, they add up all their monthly costs as a renter and then compare it to their monthly costs as a homeowner. If the amount as a homeowner is more, then they get discouraged and assume that buying is not a good deal for them. But instead of focusing on only their current role as a renter, they should go further and realize their role, and their opportunity, as an homebuyer/investor for their future:

Some people define leverage as using other people's money but another way to describe it is when a small down payment controls a large asset by placing a high loan-to-value mortgage on it. There are not many investments that allow leverage but homes certainly do and especially with FHA or VA loans.

Let's assume a couple or single buyer has the down payment and good credit that would allow them to buy a home. We'll compare some alternatives to see where their best outcome may be.

If a person put $6125 in a certificate of deposit (CD) that earned 2% annually, it would be worth $6,762 in five years and the profit would be taxed as ordinary income. If a person could take a little more risk and pick the right stock, the $6,125 might grow to $7,817 and the profit would be taxed at  the more favorable long-term capital gains rates if they held the stock for more than one year.

On the other hand, if the $6,125 were used as a down payment for a $175,000 home (possible with an FHA purchase) that went up in value only 1% per year, the equity would grow to $30,575 in the same five year period of time based on appreciation and amortization. In most cases, the gains on principal residences are excluded from income tax subject to limits. (Single person usually has an IRS $250,000 capital gains exemption and married couple usually has an IRS $500,000 capital gains exemption.)

The difference is dramatic and is one more reason that buyers should be taking advantage of the great selection of homes, the lower prices and incredibly low interest rates to fix their cost of housing for years to come. There may never be a better time to buy a home than now.

For more information on this, a rent vs. buy analysis may be obtained. Or please contact me through http://www.juliahuntsman.com/

Inspired by Pat Zaby

Dear Buyer, Are You Ready to Own?

Dear Buyer,

Many of us have heard all our lives that owning your own home is the American Dream, and that's what our goal should be. To be sure, we (still--but you might have to fight to keep them, see person to the right) have our tax deductions on mortgage interest and property taxes, among other things, so there are ways we are helped when owning property. And, to be sure, many people are paying more in rent, or nearly so, than they would be in after tax savings on a mortgage.

But there's another factor the first time buyer should consider strongly: Are you really ready to own? Because the truth is, there are certain responsibilities that come with ownership, and you will benefit greatly by thinking of these in advance, before you start going to open houses and getting excited, before you talk to anyone about buying anything.

Do you have a budget? Are you used to living under a financial plan, if not on paper, at least in your head? All the loan disclosures and property disclosures on earth will not help you if you are not prepared for life after you close escrow.

Create a long-term budget to help estimate all the costs of homeownership. Items such as property taxes (estimate at 1.25% of your current California sales price), your personal insurance, utilities, closing costs, appraisal fees, escrow fees, homeowner association dues, other home maintenance costs (roof, painting, plumbing), homeowner’s insurance fees, and moving costs should be included in the budget. Have you really estimated what you might have left over at the end of the month after your usual monthly expenses, and, assuming your lender qualified you for it, are you comfortable with that? And, besides financial ability and readiness, there is what I call "emotional readiness": the desire to own and the willingness to handle the commitment to ownership.

You will probably be better able to outlast temporary short term financial challenges if you have given some time and preparation towards the above, plus other homebuyer education with your Realtor. By doing so, I predict you will find both the home search process (another topic) and the entire buying process a better experience overall.

You may find a helpful free site at HouseLogic.com, where you can explore all these issues and more. This site is for both new buyers and current property owners to help estimate costs, explain maintenance and insurance issues and home improvement programs, types of financing, budgeting, costs, market trends, tax deductions and tax incentives, and much more!

Love, Your Realtor

P.S. There are many free online budget programs, or if you would like one of mine, I would be happy to e-mail it to you (this offer is open to anyone).

Rent vs. Buy in 2009

Now that tax time finally over, it's a good time to get into the rent vs. buy scenario for 2009.

Buyers who close escrow early in the year are likely to have greater benefit from tax deductions for 2010. In the current market, buyers are seeing opportunity that has not been theirs for several years. This slide from California Association of Realtors shows the total tax liability difference over 5 years between renters and buyers, taking into account the $8,000 tax credit, mortgage interest and property tax deductions. The overall tax liability savings at the end of five years for the buyers is over $11,000.

The $8,000 buyer tax credit must be taken advantage of before December 1, 2009. This credit is a great tax advantage in the first year of ownership--don't miss out!

Brief Explanation of New Buyer Tax Credit

Buyers have until November 30, 2009 to take advantage of this credit. As you may know, not everyone who buys a home in 2009 qualifies for the new $8,000 Federal Tax Credit for a home purchase. Here is the qualification criteria:

• Buyers must be a first time homebuyer (no home ownership in the last 3 years)
• Home must be purchased between January 1, 2009 and November 30, 2009
• The home must be kept for minimum three years
• The home must be owner-occupied
• The credit is $8,000 or 10% of the home's value, whichever is less
• A single person cannot make more than $75,000 for the full amount ($95,000 max. for partial credit)
• A couple cannot make more than $150,000 for the full amount ($170,000 max. for partial credit)
• AND, if someone meets the above criteria AND buys a newly built home, they will receive the $8,000 Federal Tax Credit and the $10,000 California state tax credit as well.

How's that for an incentive to buy a home! Go to my website http://www.juliahuntsman.com/ to find properties under $300,000; for example, right now in Long Beach along there are about 480 condos listed in the MLS, many in the lower price ranges.

Can You Buy on $100,000 Income? Yes!

"The minimum household income needed to purchase an entry-level home at $504,080 in California in the second quarter of 2007 was $101,550, based on an adjustable interest rate of 6.29 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $3,380 for the second quarter of 2007." (California Association of Realtors, August 29, 2007.)

With downward changes in the market in some areas, the buyer affordability levels become a little more positive. The percentage of households that can afford to buy in today's market has increased one percent from the 2nd quarter last year to 24%. The index goes up a little more for those who can find that 100% loan that matches their buying profile, or for those who have a larger down payment than 5%.

In today's search in the MLS for just 3 zip codes in downtown, Belmont Heights/Shore, Bixby Knolls/California Heights areas of Long Beach (90802, 90803, 90807), a total of 203 condos and houses over 2 bedrooms came up under the asking price $504,080. On your monthly payment, add in HOA dues which are usually $200 at least for condominiums. For single buyers looking for lower prices in the $300,000 range, this figure does not include one-bedroom condominiums.

I am meeting quite a few people paying $2500-$2800 a month in rent. These are the people balking at paying perhaps a higher mortgage + taxes + insurance payment, but they're receiving no tax deduction benefit and no home equity. Tax deductions include mortgage interest, property taxes, plus other deductions (consult your accountant), according to your current tax margin which for a lot of people is about 35%. What a renter has, in a gradually shrinking rental housing inventory, is a 30 or 60-day notice to find a new home, and no long-term benefits.

Here you have at least 203 opportunities to buy in these 3 zip codes alone--why not search out all of your opportunities while you can look without pressure? It's much easier than the other scenario of limited time and uncertain choices.

Is It Worth It To Buy Now?

That's the big question for some people. With the higher prices in housing in recent years, some people feel they are saving money by renting. One way to look into this question is to figure your renting vs. buying costs over time. "Over time" is a key phrase here because how long you plan on staying in your new purchase will make a difference, as well the amount of money you put down. Another factor, among several, to consider is the rental market in your area and what it will do in the future: will rents appreciate, and by how much? To check current market rents, check classified ads in your local paper. Another way is going to the "Rentometer" link on the right column. Knowing your tax margin and current interest rates on any investments or savings accounts are other features. The longer you plan on staying in a property, i.e., 5 or 10 years, the more likely you are going to save money by buying. So try this rent vs. buy calculator now, and come back to the link on the right later as you try out different scenarios.

Long Beach, Renting