Buying a Home


For most people, buying a home is the largest purchase we ever make, and chances are it was largely an emotional decision.   There was something about the view, the trees, or the kitchen appliances; something spoke to us and we were ready to buy.  Over time, that emotional attachment increases as we put our personal stamp on the house and make it our home.  No wonder that the idea of losing a home through foreclosure can be emotionally shattering.

Grieving for the loss of a home and what it means to you and your family can be very upsetting.  Too often however, I see people avoid dealing with the reality of their financial situation simply because it is too painful to even contemplate.  These are the folks that ignore the letters and phone calls from their lenders and just pray that somehow it all goes away or that they win the lottery.

If any of this touches a nerve, it might be time to take a hard look at your situation.   Try to put aside the memories of holidays in your home, and ask yourself a few simple questions:

  1. Are you behind on your mortgage payments?  What about your property taxes, insurance and HOA dues?  Are you allowing maintenance items to accumulate because you can’t afford to fix things?
  2. Has your bank notified you and provided options to help?  Have you received a Notice of Default?
  3. Do you owe more than your house is currently worth?  Is the negative equity greater than 20%?
  4. Has your household income dropped in the last two years?  Are you dipping into your savings or other assets to make ends meet?  Do you doubt that your income will improve in the next 3-6 months?

If you answered “Yes” to one or more of these questions, it’s time to take action.  As difficult as it might be to face the reality of your situation, it is far less emotionally stressful to act now while you still have options and are still in control.  As soon as you miss a mortgage payment, the clock starts ticking on a countdown to foreclosure.  Wait too long to act and your options disappear.

If you live in San Diego County and are ready to discuss all the various options available, please give me a call for a no-obligation, confidential consultation.

Marti Kilby

Broker Associate, REALTOR

DRELicense # 01474222

619-846-9249

marti@kilby.com

I think we all agree that the lack of regulation in the mortgage lending industry was a primary cause of the housing market collapse.  Not everyone with a pulse should qualify for a zero- down, $400,000 mortgage.  However, the new rules being proposed by the federal government could be the fatal blow to a struggling housing industry that is barely surviving on life-support.

The cornerstone of the proposal is the idea that the very best rates and terms for conventional loans would be reserved for the very best borrowers…..sounds somewhat reasonable, until you understand what an exclusive club that would be, and how difficult it would make buying for first-time or lower-income borrowers.

First, a 20% down payment would be required.  In some parts of the country, you can buy a nice home for $150,000, but even so that would mean a down payment of $30,000 – a big number for a lot of people.  But here inSan Diegowhere a nice 2 bedroom condo is going to cost you around $320,000, a buyer would need $64,000, which is most likely a staggering sum for anyone considering a condo purchase.

If you think that sounds a bit harsh, you’ll love the other suggested requirements for the so-called “Qualified Residential Mortgage” or QRM:

  • Strict debt-to-income ratios.  A max of 28% of gross monthly income could be used for housing expense and total monthly debt could not exceed 36%.  Currently, both Freddie Mac and Fannie Mae guidelines take other factors besides DTI into consideration, and Freddie can go up to an overall debt-to-income ratio of 45%.  And of course, this is fully documented income, so tough luck for the self-employed.
  • To refinance your existing loan for a better rate you would need a minimum of 25% equity, and if you wanted to take out any cash, 30% equity would be required.  Today’s requirements vary by lender, but are no where near that strict.
  • Pristine credit.  If you were 60 days late on any account in the past two years you would not qualify.

So to put this into perspective, let’s see what someone might be able to afford here inSan Diegowhere the median household income is $67,000.  Their total monthly housing expense, including tax and insurance could not exceed $1,563.  This means they could purchase a single family home for $295,000 (if they could find one that would qualify for conventional financing), but would need a down payment of $59,000.  Presuming their monthly take-home pay is $4,466 and they are currently renting a 2 bedroom apartment for $1200, and after all other expenses they could still manage to save $500 a month, it would take these would-be home buyers 9.8 years to save for the down payment!

What if you don’t qualify?  Get ready to pay-up.  The mortgage industry estimates that non-QRM rates will be from .75 – 3.00% higher, again pushing more people out of the market with higher rates.  So if you are like the majority of today’s borrowers and don’t have a big down payment, make an above average income and have perfect credit you could be paying 8.00% interest while the QRM borrower will pay just 5.00%.  Sounds really fair and I’m sure that will mean a big boost to the housing market, right?

This is a total over-reaction that threatens to kill the small gains and recovery that we’ve seen in the past year.  I agree that reforms are necessary, but requirements should not be so stringent that home ownership is only accessible to a privileged minority.  If only the wealthy can purchase a home, some of our troubled neighborhoods (where the QRM buyers won’t want to live themselves) will be owned by investors and would-be buyers will be doomed to a life-time of renting from them.  I don’t know about you, but to me this doesn’t sound like a way to re-build neighborhoods or salvage the American Dream of home ownership.

Do you know a first time buyer?  Well, now might be the time for them to make their move.  On Monday, Fannie Mae announced the launch of a new incentive aimed at moving some of their REO inventory off the shelves.  For a limited time, buyers purchasing a Fannie Mae owned home, sold through their REO disposition operation known as HomePath may receive up to 3.5% of the purchase price in closing cost assistance.

Fannie Mae has successfully used similar incentives in the past, and hopes that this program will encourage buyers to step forward and purchase a home now.  The company acquired 262,078 homes through foreclosure in 2010, which is a considerable increase over the 145,617 homes they added in 2009. As of the close of the year their inventory was 162,489 single family homes with a carrying value of $15 Billion. Like I said, they have to move some inventory.

In order to qualify, buyers must be purchasing a home they will live in – the incentive is not offered for investor purchases.  The initial offer must be submitted no earlier than April 11, 2011, and must close escrow by June 30, 2011. Buyers may also have the opportunity to take advantage of Fannie Mae HomePath Financing and Homepath Renovation Financing which offer loans with as little as 3.00% down payment.

To a new buyer, this basically means that all their closing costs will be totally covered as those costs generally equal about 3.00% of the purchase price.  On a $300,000 home they would need just a $9,000 down payment in order to get into a home of their own.  Pretty sweet deal.  If you know someone who might be interested, please have them give me a call as I have access to all available qualifying homes in San Diego County.

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