If it's a Buyer's Market, Why am I so Stressed?

Blame it on the fact that you like to read the news. Okay, that was cheeky. But the fact is, there is a lot of doom and gloom news out there right now. If you're a buyer, this should be good news, it should fill you with hope and happiness. But it doesn't. Human psychology is such that we are always happy following the investment curve rather than being first and winning at it.

Warren Buffett bought stock in companies that are now the cornerstone of American business years ago. Today, we feel pretty safe buying stock in those same companies. Chances are though that they will not grow and give as huge a return today as they would have had you bought them back then when they were small.

We all love to quote that we should be scared when others are greedy, and greedy when others are scared. Yet very few of us actually do so.

But you are not the only ones to blame. And while reading the doom and gloom news can be unnerving, there are some real changes occurring that might also add to the stress levels of buying a home. And most of these are on the mortgage front. For one thing, 100% financing, which used to be very easy to get, is now undergoing major changes every day. If your credit isn't good, lenders are employing stricter measures if they decide to finance a purchase at all.

Cash always has been king, but lately it's become more common. 20 - 25% down with a great credit score makes you the ideal borrower, but everyone involved is more inclined to double and triple check everything on the documents before they are released to title to sign and this can cause last-minute headaches. Appraisals are stricter (although most homes have no problems appraising if they're priced well) and some lenders require more than the usual three comps.

Being able to document your income counts quite a bit too. In fact, the mortgage broker I work closely with recently mentioned that he has not seen guidelines change at this fast a pace for the last 20 years.

But the fact remains that this is the best buyer's market we have seen in years - barring certain areas like East Sacramento. Some areas are recovering, but prices are stabilizing very slowly. I guess if you're getting the excellent purchase price, a few hiccups are inevitable.

I bet you won't mind five - seven years down the road that the docs took a week longer to sign than you previously thought!

Lessons while Remodeling

You always learn something new every time you attempt something new - especially in real estate. This week I've learned that liquid sandpaper does not work to help paint adhere to old wood paneling.

Half my home had wood paneling, so we decided to paint it. Well, Lowe's says to use liquid sandpaper and go ahead and paint! The next day, everything peeled! And we began over.

So remember to save yourself some time - just go ahead and sand the paneling the old fashioned way. It might take a little longer than just applying liquid sandpaper, but the results are fantastic!

Merry Christmas!!!

Yay! It's here.... Merry Christmas to all!

$0 Down? How About Buy a Home with $250?

Congratulations to Jessica and Brandon, who just bought their first home together. Because they timed this buyer's market so perfectly, they were able to buy 4951 Clearwood Way in the Foothill Farms area of Sacramento for just $205,000 with 100% financing.

The home had sold just a year ago for over $300,000 and was a bank foreclosure.

In a very conservative initial appraisal, the home was valued at $220,000 - about 10% over selling price. When more comps were added at the lender's request, the appraisal value shot even higher - at right around $245,000.

There's no doubt about it - REOs are where the discounts and deals are. And if you've been careful enough to keep your credit scores high, you might just be able to bag this incredible market with just about $200 - $1000 out of pocket!

Short Sales in Sacramento - Now What?

The other day, I received a call from someone who has read this blog with a very serious question. He owned two homes and was making payments on both homes every month, with not one missed bill. However, he knew he couldn't keep this up much longer. He was stuck with an Option ARM on both homes and the value of both homes had dropped about $100,000 each. What were his options, he wanted to know. He had a job offer in the Bay Area and was considering moving, but didn't know what to do with the homes. The rent wouldn't cover the mortgage and he didn't have enough to pay the real estate taxes.

So I thought I would deal with what I told him with a post under "Ask Sacramento Real Estate Gal."

Check back for the details!

Market Predictions for 2008 - a Mortgage Perspective

The mortgage expert on Sacramento Real Estate Gal, Huck Ferrill, has the following to say regarding home prices in 2008. This is an extract from a larger newsletter, but worth reading. For the most part, I agree with him.

Read on:

I think 2008 will be a mixed market for the first half (including some more foreclosures), beginning price recovery in the second half. Here’s why:

Prices have already shown some stabilization, albeit at lower levels. The last half dozen appraisals I’ve seen were 5-7% HIGHER than their selling prices. One property selling in Roseville for $225,500, appraised for $275,000 last week, for example. Higher end prices, greater than $750,000, while having showed some softness, have held up pretty well, primarily because there isn’t the plethora of bank owned properties at those levels.

Credit for financing purchases and refinances has been available all along, albeit from fewer lenders, and it has been relatively inexpensive (6-7% range). Stated income loans are available to those with good credit. 100% financing to $417,000 is available to those with good credit, documentable income, but no money. Financing to $5,000,000 is available (both stated and documented income) to those with good credit and either equity or cash for a down payment. Investor financing is available to 90% (75% stated income with good credit).

FHA reform now moving through Congress will provide financing to at least $417,000 for those with less than excellent credit (or no credit in some cases) to finance the purchase of a home, with as little as 1.5% down payment.
VA financing remains available to 100% at excellent rates.

Many of the major lenders have agreed with the President to freeze rate resets for 5 years, on many of the outstanding loans, that would have caused more foreclosures. This act alone may slow the rate of foreclosure, so that bank owned inventory begins to drop.

So, in sum, the opportunity and the means to capitalize on it are in place. I suggest that if you’ve ever wanted to own rental property, buy more of it, invest in another residence, or if you know anyone wanting to buy their first home or rental property, now is a great time to start looking because these opportunities come and go, often rather suddenly and sooner than we like.

Real Estate Quote of the Week

It is a comfortable feeling to know that you stand on your own ground. Land is about the only thing that can't fly away.

- Anthony Trollope, Victorian era novelist.

What Realtors do in their Time Off...

It isn't really time off, but today's been snowy so far and the holidays have forced me to slow down, mainly because no matter how fast my clients and I have been in getting paperwork to the mortgage company, they're taking their own sweet time sending docs out.

So we have to wait. And be patient. I was never good at that.

And this is what I'm doing in my free time:

1. Still writing "Landlord Landmines" - an e-book on advice for landlords (not limited to Sacramento or California),

2. Working off and on on the website for Landlord Landmines,

3. Writing some 312 questions for Sacramento Home.

4. Waiting, waiting, waiting..... still waiting for docs!

You've got to be Kidding Me!

Okay, I understand making a statement, but really... can you just imagine how the Realtor will have to sell this to a prospective buyer?

"Uh... wait till you get to the bathroom."

Federal Reserve cuts Interest Rates Again!

Another .25% in the Federal Funds rate and .25% in the discount rate.

Read all about it here.

Folsom Real Estate Market Showing Signs of Recovery

I was talking to a would-be buyer a few days ago who was thinking about buying a home in or around Sacramento, Folsom or Roseville and he was actually a little saddened to hear that prices in Folsom have not dropped as much as he would like.

Well, there's more news. Not only have prices not dropped, Folsom is actually showing signs of recovery. The median price of a single family residence in Folsom has risen from $414,500 in October to $436,500 in November - that's a rise of about 5.3%

Average days on market fell from 59 to 52, a signal that at least some buyers are done waiting and are taking the plunge.

Another fact: As opposed to only 11 homes that went pending in October, in November, a whopping 50 homes went into escrow!

Someone tell the bubbleheads that!!!

Winter Home Projects to Increase Home Value

When the holidays arrive we have this flurry of activity and then they're gone! It's cold outside and nowhere to go. And although where you live might have no snow, it's important to plan a few things to do in January and February to get over the winter doldrums.

In our family, we always plan a renovation project (especially since we have always lived in a fixer-upper and added sweat equity - what can I say? I'm frugal.) around January. Sometimes, we are so excited about a winter project, we begin on December 26th.

Be sure to go through and pick out a project from the features about Adding Value to Your Home Regardless of the Housing Market and you'll be much happier when Spring arrives.

Also, make sure to save some money from your Christmas fund to do these fun things after Christmas, when everyone else is morose and depressed!

Is the Real Estate Market Recovering?

You know the saying: by the time the cab driver tells you that the real estate market is really, really bad, it may be getting better.

And now that the bad news is all over the place, here comes some good news: Sacramento condos have posted some great numbers this month - an 11% increase in sale prices and a 33% increase in sales.

And while we're on the subject of bad news/good news, read this excellent article (funny, too) on Sacramento Home about my favorite publication.

First-time Homebuyers Might Have a Harder Time Now...

Traditionally, first-time homebuyers have bought homes with little or no money down. A recent email I received from Huck Ferrill, the mortgage expert of this blog, seems to suggest that these loans might be drying up for these first-timers as of the middle of next month.

100% loans on houses are backed by mortgage insurance, which insure the lender in case the borrower defaults on the mortgage. But now, at least two mortgage insurance companies have decided not to insure 100% loans on houses in California to limit their exposure.

This can have a major impact on those buyers who have less than 5% down on a home. With lending changing everyday, especially in this market, it is important to get pre-approved (not just pre-qualified) with a mortgage broker before going shopping for a home. It is also a good idea to make sure that the pre-approval is still valid when you do find the home you've been looking for.

Sacramento Market Statistics for Condos

Condos have fared exceptionally well in terms of price this last month and sales have gone up as well, although not exceptionally.

Last month I said that the Sacramento real estate market was beginning to show very early signs of recovery. Now now, before you shake your head, think about this: summer has usually been the time most homes sell or go into escrow. Summer statistics this year were abysmally depressing, however in the more laid-back time, the buyers are heading out. Perhaps a Christmas gift this year involves a house or two?

Look at the numbers:

Median price of condos in October: $206,000.
Median price of condos in November: $228,700 - that is an increase of 11% - not a small number!

56 condos sold in the month of November and 66 were pending sale - in terms of sales, that is an increase of 33% in sales.

November Statistics - Single Family Homes in Sacramento

Boy oh boy! The choices buyers have out there!

2201 new listings came on the Sacramento county real estate market in the month of November, while a mere 759 single family residences sold. the number of homes that closed escrow were not much changed from October. 759 in November as compared to 746 in October.

Pending sales were higher at 1008, a sign that perhaps buyers have finally realized this is a good time to buy. October had shown pending sales at 974.

Median price has fallen 2.25% to $299,000.

Coming up tomorrow: Sacramento county condo market. Check back!

It's the most wonderful time...

I can't believe the stuff they'll come up with!

This one's actually clever. Check out the iBlade.

And I thought I would be cool if I just bought a Wii.

Found: Flippers in Sacramento

It seems like idiocy for anyone to use the word "flipping" in today's market. Or does it?

Unfortunately, the word "flipping" in my opinion has got a pretty bad rap lately. It went from being a bad word which meant buying and selling property with no attempts at rehabbing it while profiting from the market upswing to lately adding sweat equity and then selling the home for maybe a bigger profit.

However, flipping is essentially a speculative activity. Which doesn't mean that there is no research and work involved. It simply means that it is one of the more riskier investments you will undertake.

Here are five things to keep in mind when considering flipping a home:

1. Math is always important. Here's a handy calculator for your improvements. Always over-calculate by about 25% - that way, all your surprises will be pleasant.

2. Know the neighborhood. Know the numbers - bedrooms, baths, what homes sell for, what square footage is common, even what homes rent for.

3. Stay with the neighborhood - don't overbuild. Understand that the home value is determined by the value of the neighborhood. Overbuilding won't necessarily get you the best return on your investment dollars.

4. Maintain adequate reserves. Can you hold on to the house if the market goes down further? Can you rent it out to cover your mortgage? This is thinking that has to be done before you buy the home.

5. Remember the old adage, "Be greedy when others are scared and scared when others are greedy." There's a reason it is a cliche.

Happy House Hunting!

I'm a First Time Homebuyer. What Loans are Available to Me?

The obvious answer is any loan that's available to any buyer, but since the most frequent challenge that we see with first time homebuyers, is that they have little or no money for a down payment. So for purposes of this article we're going to focus on programs that allow for 100% financing of the purchase price.

CONVENTIONAL PROGRAMS

In general, these programs are limited to properties selling for $417,000 or less, and there are are number of them with names like "My Community, Flex 100, Home Possible" or any number of proprietary names that various lenders might attach to them. All of them will finance 100% of the home's purchase price with a single loan, and all have very similar requirements-a minimum FICO score of 620, ability to document one's employment and income history for at least two years, minimum (sometimes no) reserve requirements, etc. They also will allow the home to be purchased "as is" in most cases, as long as the home is in reasonably good condition as determined by the appraisal. This is extremely beneficial if one is trying to buy one of the plethora of bank owned properties currently on the market. By the way, there are some real bargains out there now-the last six first time homebuyer transactions I've worked on, appraised for 5-7% MORE than they are being purchased for! Also, in most cases, the seller is allowed (and usually is willing) to pay up to 3% in buyer's closing costs.
An example of a typical payment for a $200,000 home looks like this:

$200,000 loan @ 6.5%, 30 year fixed $1264.14 principal and interest monthly
mortgage insurance @.59% 98.33
property taxes 208.33
homeowners insurance 58.33
TOTAL $1629.13

FHA LOANS

The typical FHA loan requires a 3% down payment and the maximum loan is about $264,000 in the Sacramento area, but the down payment can be a gift from a relative or, more importantly, can come from an additional ACCESS loan for 7% of the purchase price. That's enough to pay the required FHA down payment and all buyer's closing costs! Another advantage to FHA is that they have no minimum FICO score requirement. In fact, it's possible to obtain a loan even if there are NO accounts on the buyer's credit report. In those cases we will obtain rent ratings, ratings for utility or telephone accounts, car insurance payments or anything else the buyer has been paying regular monthly payments on. We've even used memberships in gyms for ratings!
Here's how an FHA ACCESS payment would look on the same $200,000 first time home:

$203,000 loan @ 6.5% 30 year fixed $1246.53
FHA mortgae insurance @ .5% 80.96
property taxes 208.33
homeowners insurance 61.61
$14,000 ACCESS loan @8.5% 20 year fixed 121.50
TOTAL $1718.93

That's a little higher payment than the conventional one above, primarily because the down payment and closing costs have been financed in this example. Great loan for those with FICO scores less than 620 however!

VA LOANS

Originally developed for veterans returning from WWII, this program administered by the U. S. Department of Veterans Affairs, is THE program for the qualified military veteran or in some cases, the widow of a military veteran! It provides a federal guarantee for a loan to finance 100% of the purchase price of a home up to about a $260,000 maximum and is generally available to active or discharged veterans with more than six months active service. If discharged the discharge can be any discharge that is "other than dishonorable." The benefit runs for the life of the veteran and can be reused multiple times over a lifetime. It has put literally millions of first time homebuyers into their first home! One of the other beauties of this program is that while it has a "VA Funding Fee" built into the loan, it requires NO mortgage insurance.
So check out the VA payment on our $200,000 home:

$204,300 loan @ 6.5% 30 year fixed $1291.32
property taxes 208.33
homeowners insurance 59.59
TOTAL $1559.24

I'll bet it would cost about that much to rent some of the $200,000 homes I've seen lately and one would have to put up first, last and security deposit, etc. Better to get the seller to pay closing costs, not have to go in with any money, and own the home!

There are other ways to finance all of a home purchase, CalHFA, CalVet, CalPERS, etc. all with their benefits and drawbacks, but the three above are the basics. Better for the reader's eyes (and my typing fingers) if we end here for the moment....