Billions, Trillions and a House in Santa Cruz
September 30, 2008
These sure are interesting times. Washington Mutual (my bank) - gone. Wachovia (which just bought up World Savings a while go) is now part of Citibank. The much-touted $700 billion bailout plan gets shot down in the house of representatives, and Wall Street falls 777 points to erase $1.2 trillion dollars in market value. Glad I sold all my stocks 2-3 weeks ago.
I know, I’m part of the problem. I should have just sat there and watched as my hard-earned dollars evaporated, sucked it up, been a man, and lost all that cash, the price to pay for participating in our capitalist system.
Except that I, like many of you, can’t help but feel that the system is, perhaps, a bit rigged in favor of the big guys. Like Washington Mutual, for example - my understanding is, the Feds took it over, wiped out the shares of everyone who owned it, and sold it to JP Morgan Chase for a couple of billion dollars. And the WAMU shareholders got nothing.
So what does all this have to do with Santa Cruz Real Estate? Pffft. Wish I could tell you. One thing that’s very interesting to me is this claim that the credit markets are “frozen” and that’s why we need this $700 billion bailout. From where I sit, the credit markets do not appear frozen. At worst, they appear congealed.
I’ve actually been selling a lot of real estate this year, and almost everyone who is buying is getting a loan. It is true that in order to get a loan these days, you must meet a much stricter standard. Last I checked, though - that’s a good thing. Easy credit, liar loans, all that - isn’t that how we got in this mess to begin with?
So let me assure you - if you want to buy a house in Santa Cruz, and you have decent credit (at least a 580 FICO Score to qualify for an FHA loan, I believe) and you have the debt-to-income ratios required by the guidelines. But if you have that, a pulse, and a paltry 3.5% down payment - you’re in.
Let’s say you want to buy a starter house or condo for $500,000. Mind you, the median price these days in the county is $585,000 (as of August), so it’s getting to the point where you can actually buy a habitable structure in a somewhat central location for that kind of bread. You’re looking at a down payment of $17,500. That would leave you with a whopping loan of $482,500 and payments (all-in, including principal, interest, property tax, and insurance) of about $3,500 a month (roughly, approximately - and that’s before your considerable mortgage interest tax deduction).
What’s that, you say? $3,500 is a lot to pay every month? Yeah, it is. So perhaps you would want to - gasp - have a bigger down payment, like 10 or 20%. Or buy a smaller house, or live somewhere less central. Or, wait another six months or a year before buying. Because prices are going down further. Except in Watsonville and north Monterey county, I think they can’t possibly go down much further there.
Let’s say, though, that you have $20K for a down payment, and you’re fine with a $3,500 monthly payment. You might be wondering about your closing costs - those can be considerable, especially if you are in fact going with FHA financing.
No worries, mate! Put a shrimp on the barbie and let the seller pay your closing costs. Most sellers, if you write them a high-enough offer, will be happy to pay your closing costs. Even in a short sale, and especially if you’re buying a bank-owned REO property. You might even be able to lower your rate by paying a point or two, which is not a bad idea if you’re planning to stay in the home longer than 3-4 years.
It hardly needs to be said, of course - but if you’re planning to buy a house, you’d better plan on being there at least 3-4 years. At least. Real estate is a long-term investment. Not like that crazy silly stock market. 
Posted by SantaCruzBroker at 8:29am
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Pre-Qualification, Pre-Approval - what’s the difference?
April 19, 2008
To be, or not to be, that’s is the question. To pre-qualify, or get pre-approved, what’s the difference? There’s a big difference, and if you are looking to scoop up some real estate in today’s rocky credit market, it’s important to know the two apart.
This is something I hear all the time: “Getting a loan won’t be a problem for me.” Or, how about, “I have a friend who is a mortgage broker, and he says based on my income and credit score, it will be easy to get a loan.” Talk about famous last words before your financing never materializes!
So here’s the the skinny. Pre-Qualification is basically what happens when your buddy the mortgage broker asks you how much money you make, and how much your expenses are, maybe he runs a credit report,and then issues you a spiffy letter saying “Based on So-and-So’s income, credit score, and blah blah, I have pre-qualified So-and-So for a purchase price not to exceed $XXX,XXX.”
Granted, this is better than a poke in the eye with a sharp stick. When you are going out to buy some real estate, leave the sharp stick at home and if you don’t have anything else, bring your pre-qualification letter with you. OK, not really, you can leave that behind when you’re actually out looking at properties, but you’ll want to have it handy for when you want to write up an offer.
Here’s where it gets a little rough: sometimes, even though a mortgage broker will pre-qualify you, he will write on the letter, “So-and-so is pre-approved to buy…” when in fact, they are not pre-approved to buy anything. So what’s the difference?
You’ll know the difference when you actually go to get pre-approved. Here’s how to tell if you are pre-approved:
1) It took at least several days of work to get pre-approved
2) Your mortgage broker kept asking you for lots and lots of documentation
3) You have an actual loan number from an actual lender (e.g. Wells Fargo, Chase, Washington Mutual).
The difference for pre-approval is that the lender, not the mortgage broker, has actually approved you for the purchase of a house. You have supplied the requisite documentation (and there’s a lot of it, usually) and you have passed through the lender’s underwriting process. At this point, the only missing part of the equation is the collateral - that is, the property you are going to buy. The lender needs to appraise it and make sure it meets the other guidelines for the loan.
Even if you think that you won’t have any trouble getting a loan, even if you have all the assurances in the world from your friends in the mortgage business - get pre-approved by a lender, not a mortgage broker very early in the home-buying process. This will likely save you much wailing and gnashing of teeth down the road.
Another benefit of pre-approval is that you will know what actual loan you will be getting. You’ll know the interest rate (although it may fluctuate), any points, any special features of your loan, etc. You will also at this point should be able to get from the mortgage broker a good faith estimate of closing costs, so you will know how much actual cash you will need to close the loan - and loans don’t come cheap! Of course, you may be able to get the seller to pay for your closing costs - in a market like this, it isn’t too tough.
If you are thinking of buying a house in the next several months, do yourself a favor: get pre-approved, now. The process may take longer than you think, and it will be very beneficial to know what your actual payments and closing costs will be long before you actually incur them.
Posted by SantaCruzBroker at 7:55am
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