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
No Comments »
I’d like to point something out
June 20, 2008
I don’t want you to get the wrong idea - my trip to Las Vegas last week wasn’t a complete waste of time. I love taking pictures, and I ended up getting some decent shots to add to my collection. One day I’d like to take some actual photography classes, but I’m afraid that will have to wait until I get enough time free in my schedule. But if you’re interested, here are the photos I took on our trip to Las Vegas.
I didn’t take any pictures from the seminar/training deal - although that was interesting. The seminar/training deal was held at Bally’s (the same hotel where we stayed - highly recommended, it’s cheap given it’s prime location and it has a monorail station), in the Pacific Ballroom. Huge room, the size of a football field, There were only 120 Realtors or so taking the training - apparently they had expected there would be a lot more, to have rented a room of that size. A sign of the times?
Anyway, we spent some time talking about paying discount points. A few weeks earlier, at my regular office meeting, one of the owners of my brokerage (Larry Hattis, the infamous) gets all worked up about discount points, how he loves paying discount points. Or, rather, he loves it when the seller pays the discount points, although it’s all pretty much the same thing, since it’s your money (the buyer’s money) that he’s using to pay the points (typically, unless it’s a short sale).
What both Larry and the trainers said was this: seller paid discount points are tax deductible for the buyer in the year that the property is purchased - that’s right, even though the seller pays them. Sweet, huh? So let’s say the seller pays two points for your $500,000 loan - that’s $10,000, which is a big fat tax deduction you get to take that year. Not too shabby.
One thing that the trainer talked about is that many lenders also charge an origination fee. This is the biggest of the myriad fees you see that get paid to your lender at the time of closing. The thing is, this is basically a disguised discount point. Some lenders don’t charge origination fees - but this is probably reflected in a slightly higher interest rate. So…if your lender is going to charge you an origination fee (which is not tax deductible), ask if instead it can be called a discount point on the closing statement, and so then it, too, will be tax deductible.
Here’s a little article on bankrate.com about origination fees and discount points. Now, I’m not necessarily advocating that you get the seller to pay discount points for you - although it is increasingly common, especially as buyers are finding that interest rates are higher than they heard they might be - typically around 6 to 6.5%. Paying points probably makes sense if you plan to hold on to the property for several years - which since real estate works best as a long term investment, it’s something to consider.
Posted by SantaCruzBroker at 7:45am
No Comments »
Blog Entries
