California’s Answer for the Sub-prime Lending Melt down.

May 9th, 2007

Most first-time buyers are now faced with a higher credit score requirement and tighter standards after the sub-prime market went through its shakeup.  For many, that has created an additional challenge above and beyond the high cost of housing in California.  The answer to this is a very much overlooked first-time home-buyer program that solves this problem for many entry-level buyers with low FICO scores.  The CALHFA (California Housing Finance Agency) program is sponsored by the state of California and has many features not available anymore through sub-prime lending.

To start, the program allows for 100% financing with only a 620 fico score.  In the current lending environment, most programs now require at least a 660 FICO score.  Aside from the low FICO score requirement, loan approval can be accomplished with the buyer’s debt to income ratio exceeding 50%.  CALHFA offers the buyer below market interest rates on a loan that has a fixed rate of 30, 35, and 40 year terms.  With this type of loan, the consumer will never have to worry about his loan changing because it is not an adjustable rate mortgage product.

Currently available is an interest only loan with a 6% rate fixed for 35 years.  This is a type of loan product in which the buyer gets a loan once and never has to think about refinancing the home.  This type of loan program does require PMI (Primary Mortgage Insurance), but once you have reached a 20% equity position in the home and two years have gone by, you can eliminate the mortgage insurance and lower your payments even more, which is truly a better option for most homebuyers.

CALHFA also has available their HICAP (High Cost Area Home Purchase Assistance) program with $7,500 of assistance for down payment and their CHDAP (California Homebuyer’s Down-payment Assistance Program), which offers an additional 3% of the purchase price for down payment or closing cost assistance.  Many other community silent (no payment) second, third, fourth, and fifth loans can also be added to the loan to further lower the payments, by reducing the amount of principal that the buyer is borrowing.  Another very unique feature of this loan program is the Mortgage Protection Program.  This program can make up to six months of mortgage payments if the borrower becomes involuntarily unemployed and is receiving state unemployment benefits.

After reading, this I hope you have come to the conclusion that although buying your first home can be challenging in the aftermath of the sub-prime lending shakeup, there is still hope and with the right guidance from a knowledgeable professional, first-time housing can still be affordable.

Co-written by Randy Nathan and James Dedolph, creators of where you can find Homes for Sale in San Diego and where you can find the best rate and terms for Homes Loans in San Diego .  Both of these sites are a good resource for information about San Diego Real Estate .

Buying a home in the aftermath of the sub-prime lending shakeup…. What you need to know

April 12th, 2007

By now, I’m sure that almost everyone has heard of the sub-prime lending shakeup.  In case you haven’t heard, the sub-prime lending shakeup was the result of many lenders’ policy of making loans that were extremely aggressive and not necessarily good investments and that caused those loans to have a very high default rate, which has caused investors to stop purchasing the loans in the secondary market.  Now, you may ask, what does this have to do with my purchasing a home.  In many cases, sub-prime lending has not only to do with your FICO scores, but the structure of your loan and finances.  So, while you may have good credit scores, your financial situation might not look as appealing to a lender if you’re using one hundred percent financing. 
In most cases, what this means is that if you’re planning on using 100% financing, you need to make sure that your income is sufficient in qualifying you to make your payments and that your FICO scores are truly exceptional.  If you are unable to meet these requirements, you’ll need to plan on putting at least 5% of the purchase price as a down payment.  Otherwise, your interest rates and low terms will not be favorable.

Another effect of this shakeup has been that lenders are now constantly tightening their lending guidelines, and in many cases these changes are occurring daily.  So while one day you may have a loan approval, on the next day it’s withdrawn because the guidelines have changed.  Thus, when you are writing your contract to purchase a home, you need to be very conscious of how long your contingency periods are for your loan and appraisal.  If you are involved in a transaction where your contingency period for your loan does not remain in effect until the loan funds, you should definitely have some concerns that you may lose your deposit.  Another important factor in protecting yourself is making sure that you have a loan officer whom you fully trust to be completely frank about your abilities and limitations for financing.

Notwithstanding all these cautionary notes, while the sub-prime lending shakeup will have an effect on the real estate market place, I do not believe that it will be as dire as the media is predicting.  There will be no tsunami of foreclosures, no collapsing markets, and no bubbles bursting.  Of course, there will be adjustments in the real estate market, but this is purely a natural phenomenon in the economy.  Many reputable sources are predicting that the real estate market will not crash and that over the next year or two, homes will continue to slowly increase in value.

In conclusion, while the sub-prime lending shakeup will affect your purchase of a home and the overall market, as long as you are aware of it and take the next necessary steps to protect yourself, the effects should not be dramatic.

Written by James Dedolph, creator of where you can find Homes for Sale in San Diego and where you can find the best rate and terms for Homes Loans in San Diego .  Both of these sites are a good resource for information about San Diego Real Estate .

What gives a home its Value?

October 5th, 2006

Many people look at today’s home prices and wonder how it is possible for them to be as high as they are.  As a REALTORÒ who studied economics, even I find it hard to believe that prices have risen as much as they have over the last 7 years.  However, if you take a moment to think about the factors which influence price, it is apparent that housing prices are where they should be. 
            There are many factors that influence the value of a property.  In a general way, the most important of these factors are location and local market conditions.  First and foremost, it is local market conditions that establish prices in an area.  The most basic influencers of San Diego Real Estate market conditions are supply and demand.            

            Logically a short supply of homes and a high demand for homes must cause home prices to rise.   Location is one thing that can readily affect the demand to live in an area.  Anyone who has been to San Diego can understand why someone would want to live here.  Great weather, the ocean, a strong economy, and access to almost any kind of recreation a person might want.  In San Diego, the demand for homes is not being satisfied on a yearly basis, causing a buildup of demand that is growing every year.  Additionally, because of political and geographical restrictions the growth of the supply of San Diego Homes is being stifled.  High demand + Limited Supply = High prices that are heading higher! 

How to Start Building Wealth in San Diego

September 29th, 2006

-Buying a San Diego Home instead of renting one:  It might sound strange, but home ownership can be one of the best tools available for saving money.  In today’s competitive loan market there are many loan programs that allow for the purchase of a home with very little money up front.  The bottom line is that you can use money that you are throwing away on rent to build equity in property that in recent years has increased at more than 10% annually depending on zip code.  For example, if you use credit to buy a 300,000 dollar condominium, in three years you could reasonably expect it to be worth 399,000 dollars.  Granted this kind of appreciation may not always occur, however even with single digit appreciation, coupled with the tax benefits that you get from owning a home you wind up with a tremendous long term investment So, rather than saving money to buy a home you should buy a home to save money.
-Start with realistic goals:  Odds are that the first home that you purchase will not be your dream home, at this point in the process of building wealth in real estate it is much more important to get into something that will build enough equity to allow you to purchase something better in a few years.  If you could find an apartment where much of the rent you paid went into a fast appreciating savings account and earned 10%, but there were things you didn’t like about it, would you live there?  The answer is of course, most people would live in a place that was less than perfect if they could actually earn money for living there and have their investment gain be tax free up to 500,000 dollars. 
-Consult with the proper professionals: Shop around until you find a professional REALTOR® with whom you feel comfortable and who has a Free San Diego MLS Search.  The best professionals will understand your specific goals and work to help you attain those goals.