California home financing information and advise

Gabe's Blog

Should I Buy Now or Should I Wait?

September 29th, 2009 12:45 PM

Many people have recently asked me “is now a good time to buy or should I wait?” I certainly understand one’s hesitation in buying due to fluctuating home prices. However, I would like to share with you some information on the market and interest rates that might affect your thought process on why now is a great time to buy versus waiting.

I was at an economic summit last week with a very reputable financial analyst, Barry Habib who specializes in analyzing the mortgage backed securities markets and treasuries. He explained many items that are currently putting pressures on interest rates (most specifically the Fed's decision on buying Treasuries and inflation) and his prediction is that in the next 6 months interest rates will be 1% higher than the current rates. He believes rates will gradually be climbing with some possible dips in the market here and there. He described this as a child playing with a yo-yo on an escalator going up (I really liked this visual). This will most certainly affect one’s affordability and one’s monthly payment when rates go up.

Additionally, he spoke about timing of the housing market and explained why it is smart to buy now, which is either at or close to "the bottom" of the market. First, it is impossible to predict the bottom. Anyone who says they know when the bottom will be is only making a prediction or lying. Second, buying now gives a buyer more negotiating power with the seller and more options of homes to choose from. If you wait until the market starts to go back up, which it has already started to do in several sub-markets, than you will have less negotiating power, less inventory (less homes to choose from), and less flexibility with terms of the purchase contract. Third, the high-balance conforming loan limit ($729,750) is scheduled to go away after December 31, 2009 and go back to $417K next year unless Congress decides to extend this through next year. Lastly, the $8K tax credit goes away after December 1, 2009 (Congress is discussing a possibly $15K tax credit next year but this has not been decided on yet). All this coupled with higher interest rates will make buying “later” a much more challenging time to buy and more expensive in my opinion. I am not saying this to put pressure on you but simply to inform you of the market knowledge that I have and to help you to make an educated decision on one’s “timing” of the market. I hope that you find this information helpful.

If you would like to further discuss your specific situation, please do not hesitate to contact me at Gabe@BayAreaHomeFinancing.com or 408-426-4416.

Thanks,

Gabe Bodner

Posted by Gabe Bodner on September 29th, 2009 12:45 PMPost a Comment (0)

Subscribe to this blog

Best Buddies Challenge 2009 and my reflections

September 15th, 2009 4:55 PM

For those of you who supported me in my fundraising efforts for Best Buddies, thank you so much! I have successfully raised $1307 which is just shy of my goal of $1500. If you have not had a chance to donate, there is still time, so please click on this link to donate today, http://www.hcchallenge.org/gbodner

This year was the sixth Audi Best Buddies Challenge: Hearst Castle. Close to 1,500 people participated in the weekend’s events, including the 100-mile cycling course (which is what I did) from Carmel to San Simeon, on Saturday, September 12.

I am very grateful to have been able to participate in this event and be a part of such a wonderful organization. Throughout the weekend, I had the opportunity to learn just how important the Best Buddies programs are and how big an impact a friend and job can make on someone’s life. Not only was this a challenging and fulfilling experience for me physically but emotionally it was just as fulfilling. I cannot tell you how overwhelmed I was to see many of the young people with intellectual disabilities out there riding and laughing, having fun, and making lifelong friends.

I was sincerely impressed with the amount of money raised by individuals soliciting donations from their friends and family. The top fundraiser raised $56,000! The Challenge raised almost $4M for Best Buddies International.

Thank you so much for your support. I look forward to participating in the event again next year and I hope you will continue to support me and this wonderful organization!

With much appreciation,

Gabe Bodner

Posted by Gabe Bodner on September 15th, 2009 4:55 PMPost a Comment (0)

Subscribe to this blog

How to buy a home with less than 20% down

September 4th, 2009 2:41 PM

HOW TO BUY A HOME WITH LESS THAN 20% DOWN

Here are two market realities as we conclude year two of the ongoing credit crunch: Dow and S&P 500 indices tell us stocks are down 40%, and the S&P Case Shiller Home Price Index tells us single family home prices are down 33% since their 2Q2006 peak, putting prices at mid-2003 levels. So home pricing is finding a bottom just as potential buyers may be light on cash. The days of 100% financing with no documentation are gone, but with upgraded FHA loan guidelines, buyers can put as little as 3.5% down and obtain a conservative 30-year fixed rate mortgage. FHA loans allow gift funds and/or co-signers, and also allow sellers to credit buyers for closing costs. But FHA loans are stringent on borrower income and asset analysis as well as property analysis—especially on condos.

If you plan to use an FHA loan, make sure you are pre-approved by a direct lender like myself. A good pre-approval means borrower is ready to close, leaving only the property to be approved prior to loan documents being prepared and funding. Tell your lender about each property you’re serious about so they can examine potential property-specific issues BEFORE you write an offer.

Below is a Q&A to help you understand FHA loans:

Q: Are FHA loans even relevant for higher cost areas?

A: Yes. For example, in the 9 county San Francisco Bay Area, FHA loan limits are $729,750. With a 3.5% down payment, this translates into a $756,217 home purchase price. On a condo with $350 HOA dues, all-inclusive pretax monthly costs are $5486 and all inclusive cash-to-close is $45,438.

With a 10% down payment, this translates into a $810,833 home purchase price. On a single family home, all-inclusive pretax monthly costs are $5289 and all-inclusive cash-to-close is $102,506. Cash-to close figures include 6mo prepaid taxes and 1yr prepaid insurance. About $145,000 gross annual household is needed to qualify for these scenarios.

Q: What are FHA home loans?

A: FHA home loans are mortgages best suited for borrowers with steady income but without 20% down payments, including first ime buyers, individuals or families trying to conserve cash, and early career buyers. They’re also well suited for borrowers with past credit problems.

Q: Does FHA lend money?

A: The FHA guarantees your loan but doesn’t lend money. An-FHA approved lender approves and funds the loan. The FHA’s role is to guarantee the loan if the borrower misses payments or goes into foreclosure.

Q: Do FHA loans benefit lenders or borrowers?

A: Both. If the borrower misses at least 4 payments, the FHA can help them get current. If troubled borrowers qualify for this one-time FHA default assistance but then eventually go into foreclosure, the FHA covers the debt for the lender. Since this reduces lender risk, lenders can offer very attractive rates and down payment terms to FHA borrowers.

Q: What’s the catch? How can the FHA guarantee these loans?

A: All FHA borrowers pay a Mortgage Insurance. Premium (MIP). Currently, FHA loans have 1.75% up-front MIP and 0.5% to 0.55% monthly mortgage insurance. These percentages are based on loan amount. The FHA’s MIP fund—not taxpayer dollars— is what enables them to back loans for borrowers and lenders.

Q: Are these MIP fees permanent?

A: No. Monthly MIP is paid for at least 5 years. At or after 5 years into a 30yr fixed FHA loan, if the borrower’s FHA loan reaches 78% of the original purchase price, the monthly MIP goes away. The upfront MIP will be refunded on a prorated basis if borrower refinances into a new FHA loan within 36 months. Up-front MIP can be financed, paid in cash, or covered by a seller credit.

Q: Are these MIP fees tax deductible?

A: Under existing legislation, FHA MIP fees are tax deductible on purchases and refinances through 2010. Single people with adjusted gross income (AGI) of $50,000 or married couples with AGI of $100,000 can deduct all monthly and some up-front MIPs on their Federal tax filings. Note that many elect to finance the up-front MIP for budget reasons, which makes that portion fully deductible under the mortgage interest deduction rules. The tax deductible amount phases out between $100,000 and $109,000 AGI. Consult a licensed tax professional on all tax issues.

Q: What kinds of FHA loans and rates are available?

A: The most common FHA terms are 30-year and 15-year fixed loans. These loans have no prepayment penalties and are assumable. FHA rates are the same and often lower than Conventional Conforming loans.

Q: Can I use FHA loans for investment property or second homes?

A: No. FHA loans are for owner-occupied property only. Borrowers must move into the property within 60 days of closing a purchase, and must occupy the property for at least 1 year.

The opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual.

Posted by Gabe Bodner on September 4th, 2009 2:41 PMPost a Comment (0)

Subscribe to this blog