Buyers: Are you using your eagle eye?

Are you watching for opportunities?  In my opinion, those willing to put in some sweat equity on less than move-in-ready homes could reap rewards if planning to keep the property for at least 5 years.  The new loan options that will ease borrowing for a home purchase in our area may allow some to get into the market that previously thought they could not due to perhaps high prices, less than perfect credit, demand, etc.  This update of the Economic Stimulus Package of 2008, in a nutshell is as follows:

1. The limit was increased for the amount of FHA-backed loans.  The Federal Home Administration offers an insurance product.  FHA loans took a back seat to the subprime loan products of the early 2000’s for borrowers with minimal down payments, partly because the limit was so low and partly because there was an extra fee for the insurance.   FHA loans, up until now, had a low maximum allowable insured limits, severely limiting its usefulness in high priced markets such as ours.  However, this increase to $729,500 is a substantial jump and is available – currently – until 12/31/08.  This is meant to ease the worries of investors by attempting to reduce the risk of loans with government security.  Not all mortgage brokers can offer FHA loans.  Ask your preferred Mortgage Broker if they are approved to do FHA loans.  Our in-house lender, Princeton Capital representative Susan O’Driscoll, can offer them and gave me a list of several key points for those who may consider an FHA backed loan.  A few highlights:

  • OK for any buyer, not just first time buyers.

  • Princeton can underwrite, draw the documents, and fund the loan.

  • FHA does not count 401K loans in debt ratios.

  • NOT FICO (credit score) driven.

  • FHA loans are assumable to qualified buyers.

  • Owner occupied only and moves into the home within 60 days.

  • 100% gift allowed for down-payment and closing costs.

2. Fannie Mae and Freddie Mac loans (known as “conforming loans” with a limit of $417K) now have a temporary increased limit of $729,000 in San Mateo County, including other California counties.  Other County limits may be different.  Up until now, borrowers were looking at getting a First and a Second (Seconds meaning Jumbo loans) to get into homes here unless they were move-up buyers with a lot of equity for a large down payment.  This article from Forbes sums it up and gives figures on which markets will be “…the biggest real estate winners”…

“It also reduces consumer interest rates. Loans above Fannie and Freddie’s limit are known as “jumbo” loans, and because they aren’t backed by the government, these riskier loans carry higher interest rates. Under the limit increase in the stimulus package, loans that are recategorized from jumbos to conforming loans (54% in San Jose, 44% in San Francisco, 17% in New York) will carry lower interest rates. For potential buyers, this makes home buying more affordable…”

As an aside, I have to say that I couldn’t help but think about the Forbes article Title using the word “winners” in it.  Where there are winners, there are also losers.  We know who the losers are and this reality saddens me.  Those who left insufficient funds in their property-bank, or those who took a risk with one of the negative amortization or other ill-fitting loans – didn’t project the loan’s affordability as it adjusted and now find that they can’t afford those monthly payments -are feeling loss right now.

For more detail and to discuss our situation and options, call your preferred mortgage consultant or Susan O’Driscoll (see her link in my blogroll under Mortgage) to see if you are able to move forward with your home purchase plans.  This program, in combination with a good inventory (remember, inventory is higher than last year as shown in an earlier post) for buyers that we haven’t seen in a long time will create a perfect storm for some who choose to make the call to their preferred lending, real estate, and financial consultants.