first time homebuyers

Beware: Lenders will add an extra step before close of escrow.

You are in escrow? Don’t apply for any new credit!

You have been seaching for months to find your deam home in a decent location and you think you have it in the bag, having outbid multiple offers along the way and you are now safely in escrow. Everything is going great, you are a few weeks away from closing and you are already shopping around for all of the home furnishings you will need to buy but, hold on! According to the Los Angeles Times, lenders will now order a new credit report just before the close of escrow, effective beginning of June.

Why? It seems that Fannie Mae wants to crack down on buyers who max out their the credit card while about to buy a property. If you purchase big ticket items on credit during your escrow period, understand that the purchases could jeopardize your lending ratio and throw off your application. And we all know how tight banks are today with their money.

So, if you are tempted by a new car to commute between your work and your new house, think twice. Be patient and wait that escrow has closed. Then you can go and have fun enjoying your place.

first time homebuyers

A Real Estate Thanksgiving!

Happy Thanksgiving!  Prospective home buyers and refinancers alike can be especially thankful this year.  According to the L.A. Times, Fannie Mae reports that during the week that ended yesterday (before the Thanksgiving holiday) mortgage rates dropped to a record low (4.78%!!), a level last seen in April, during much gloomier economic times.  Not surprisingly, these low rates have already gotten buyers off the sidelines, and inventory levels in some areas (such as the San Fernando Valley) have plummeted over the last year, according to the L.A. Daily News.

All of this bodes well for the market in the near future.  If you want a great rate, grab it while it lasts.  I have a network of great lenders and would be happy to make an introduction.   When the coming wave of inflation hits, you’ll be glad to have locked in affordable long term financing and that you own a leveraged physical asset:  real estate.  Just remember to insist on a fixed rate, or you could be in for a rude awakening down the road when rates skyrocket.

first time homebuyers

First Time Homebuyers Going to Extremes Part Two: Getting Lucky at an REDC Auction

After months of looking for a property for my client, who was looking for a condo in the San Fernando Valley, we were both starting to lose hope in making the impending deadline for receiving federal first time homebuyer assistance.   When his purchase offers were not completely ignored by REO listing agents (despite the fact that he was offering well above asking price), they were rejected in favor of all cash offers.   We learned that his favorite property (which had been listed on the MLS) was put “on hold” by the listing agent, after he had already made an above-asking price offer on the property.   A little investigation revealed that the property was now due to be sold at an REDC auction in early August.  I had hoped that the bank would still consider our offer during the 3 weeks we had left till the auction; for some inscrutable reason, this didn’t happen, and the Bank never bothered to even respond to the offer.

So we went to the auction,  after having made sure we had done all the preliminary requirements posted on the auction website (pre-registration; pre-viewing the properties, etc.)  Arriving at 8 a.m. at the LA convention center to the sound of some blaring pop music, there was a carnival-like atmosphere, missing only popcorn and pompom girls.  We took our seats and waited.  Under the terms of this particular auction, some properties are cash only, but most can be financed. The properties are flashed on a big screen.  You need to have a good strategy for the property you want to bid on: once you get the bid, you are generally “stuck” with the property or you’ll lose your earnest deposit.

Before the auction started, there was a quick rehearsal of the bidding process: a fast-paced process with the auctioneer raising the bids as fast as he can.  Once the highest bid is reached, the auctioneer will either acknowledge that the bid is accepted, “closed”; or “subject to”.  “Closed” means that since the bid didn’t meet the (hidden) reserve price, it is rejected.  “Subject to” is a kind of limbo — it means that the bid will be submitted to the seller who has up to two weeks to accept, reject, or counter the bid.

When our property came on the screen, we were both feeling a bit nervous; but my client was able to ultimately win the bidding war!  Better yet, the deal was accepted on the spot (and was not “subject to.”)  We were then ushered into a back room where we had to pass the approval process, and were able to consult with three different lenders on site.  At that particular auction, REDC wants you to take the conventional loan route, since the properties are foreclosures and might not pass the FHA inspection.  Additionally, the escrow has to close in 45 days, and there is a penalty of $150 each day for missing the closing escrow date.  Once we got the green light from the banking tables, we were rushed to the escrow table where you pretty much sign and initial paperwork until your hand is aching!  Forget about any contingencies (e.g., loan, inspection, etc.) and you have to pay many costs that a seller would normally pay for in a non-auction context.  Further, you are committed — no matter what — so make sure you have done all the prep work well in advance.

In the end, my buyer had to go to extreme measures to secure a property — the advantage to him of the REDC auction was that the property went to the highest bidder, and the trump card normally enjoyed by cash buyers disappeared.

Finally, the question on everyone’s lips: did my client score a “deal” at the auction?  In purely financial terms, the answer is “no”.   With all of the competition, he was forced to pay pretty much the market price.   (On top of the bid price buyers are subject to an additional 5% or $2,500, whichever is highest and the buyer is on the hook for all inspection costs and pretty much all closing costs!)  However, my buyer was able to compete on par with every other bidder, saved himself months of frustration, and scored his absolute no. 1 favorite property.  All in all, it was a good deal for him, under the circumstances.  Now he can move forward and start thinking about what furniture to buy with his tax credit!

Do you need a Realtor® to purchase a property at a REDC auction?  If you can find someone willing to help you (the commissions are razor thin), you will likely be better off, as your Realtor® will be able to provide with some comparative market analysis for each property you have in mind, and can help you devise a strategy so that you don’t get lost in the somewhat confusing process.   (In addition, should you chose to use a Realtor®, you will be entitled to the C.A.R. H.A.F. Mortgage Protection Program).

first time homebuyers

Can You Afford to Throw Away Up to $8,000.00? November 30th Is Just Around the Corner.

The federal first time homebuyer tax credit will expire — poof! — and you’ll have officially blown your chance to access up to $8000 if you can’t get into escrow and actually CLOSE THE DEAL by no later than November 30th, 2009. Thus, some are suggesting that if you are a first time buyer that you try to get a property under contract by September 30, 2009 in order be able to have plenty of time to close before the deadline. (There is always a possibility, of course, that the credit will be renewed or changed by Congress — but are you feeling lucky?)

California is a very desirable place to live — but it is also the 47th lowest state in homeownership with a rate of only 56.9% according to the US Census Bureau. Since the last recession ended in the 1990s, it became increasingly difficult to afford to buy a property in California and, in particular, in Los Angeles. The recent real estate and financial market crash has had a silver lining — real estate is now more accessible then it has been in a long time.

In Woodland Hills, from the beginning of this year up to 7-26-09, a 3 bedroom 2 bath house with about 1315 square feet averaged just over $400,000. This translates to a monthly payment of less than $2,250.00 with 3.5% down payment (FHA) and a hypothetical interest rate of 5.6%. By comparison, it would likely cost you $2,300.00 to rent the equivalent place, a rent payment that is very likely to increase over the next thirty years. What you gain by owning vs. renting is the interest tax deduction, and up to $8,000.00 in the form of a tax CREDIT provided you qualify and close escrow in time. (Do keep in mind that there are other costs, taxes, insurance etc. — but also intangible benefits to homeownership. Plus, if you get a fixed rate mortgage, as we advocate, your investment will be sheltered from inflation.)

If you find yourself overwhelmed by the buying process (from getting pre-approved to selecting your property), please let me guide you so that the process is as smooth as possible — perhaps you will find yourself in a new home in time for the holidays.

first time homebuyers

Gazing Into the Crystal Ball: When Is the “Best” Time to Buy a Home or Investment Property?

Have we hit bottom yet in Southern California?   I’d love to look you straight in the eye and confidently predict “yes, this is it, break out your checkbook and buy, buy, buy,” except for one thing.  I’m not a fortune teller and I don’t have a crystal ball.   In fact, I can honestly tell you I have no idea where the bottom will be reached (presuming it is not there already.)   Moreover,  as you already probably know quite well,  no one can predict the future.  Even the professionals to whom we pay good money for their prognostications can’t do it either.  Not your stockbroker, not the ratings agencies, and certainly not the big name pundits you see on TV.  For a hilarious if somewhat long video of some famous folks (like Ben Stein) who got it famously wrong on a very public forum see this:

That might be enough to make you sick to your stomach, and at least,  to swear off financial pundits forever.  Unfortunately, real estate punditry is not much better.   While real estate tends to move in much slower cycles than the stock market, and is therefore somewhat easier to predict, no one will know when the bottom has been hit.   Everyone wants to buy at the bottom, to have something to brag about over the water cooler if for no other reason.  While there have been some “green shoots” on display recently, many are bracing for the next wave of foreclosures and layoffs.   However, as real estate broker and blogger Frank Borges Llosa put it in his blog, the exact correct day to buy is simply “the day you stop caring about the bottom of the market and you decide you are ready to live in a place for 5-10+ years and enjoy life.”

Of course, even Frank’s sound advice falls a bit short if you are looking for an investment property, like a duplex, triplex or fourplex.   However, there are some rules of thumb I like to consider.  How close is the cost to the replacement cost?  What is the potential appreciation?  Since the San Fernando Valley is pretty much built out, they are not making any more land around here.  (The same cannot be said for some other areas, such as Riverside or San Bernardino.)  Given that construction costs are likely to go up with increasing regulations and costs of materials, the closer you can get to buying something  at or below replacement cost, the less risky the investment — presuming it is in an area where the rental demand will remain relatively stable.  Can I make money off it — if not right now, when?   What is the job climate like?  Admittedly, Los Angeles is not as economically healthy as it has been in the past, but there are some things that will always make this area desirable to many — the climate, beaches, entertainment business, etc.    Finally, real estate is an illiquid investment and one in which the market is still quite inefficient — which can be a good thing if you are a buyer and can score a property for significantly below market value, you can protect yourself against some further declines in the market.   (Good luck trying to buy a stock below market value!)

In conclusion:  I still love real estate as an investment — the long term fundamentals are hard to beat, notwithstanding the day-to-day uncertainties of the market.   Just make sure to buy the right property and lock in your fixed rate financing.  How can you find a great deal?  You’ve got to work at it, I’m afraid.  But I can help:  send me an email and I’ll get you started with daily MLS search information tailored to your particular wishes.  Then I’ll help you sort through the choices.  Also, I may already know of a suitable property:  don’t be afraid to call me anytime.

first time homebuyers

Hipster Alert! Is Woodland Hills Destined to Become the Next Trendy Destination?

Ok, that might be a bit of an exaggeration. But there are big changes planned for the West Valley that may well affect the desirability (and price) of homes in Woodland Hills and surrounding areas. On the almost-empty (save for a new Crate & Barrel) parcel of land that separates the Westfield Promenade and Westfield Topanga, megadeveloper the Westfield Group is planning to construct what may become the “Third Street Promenade” of the West Valley. In fact, the planned development (called The Village at Westfield Topanga) will look so much like the Third Street Promenade in Santa Monica, that Westfield used a photo of the actual Third Street Promenade in its marketing efforts: check out the fourth slide on http://westfield.com/thevillage/

Westfield’s information about the Village on its site is a bit sparse – it does not seem to have been significantly updated since 2007 – but the developer claims to be “exploring” “community amenities” for the Village including a “senior/community center, museum component with interactive educational programs for children, water features . . . public art displays, such as sculpture gardens, gourmet grocery store, and open air plaza.”
What does the planned Village development mean for the West Valley? Perhaps, finally, some nightlife of the non-enclosed mall variety, some more restaurants and a place to hang out during the warm Valley nights. Time will tell whether the actual development will be a plastic-y replicant of actual life (like the taste-challenged Universal Citywalk), or something with some character. Given the current state of the economy it may be some time before the Village is anything besides a dream on a piece of paper. But, if the Village development takes place as planned and it is well executed, it will add a sorely needed amenity to Woodland hills, and may well have a positive impact on the market value of surrounding areas.

first time homebuyers

First Time Homebuyer? Uncle Sam Now Wants to Make Your Down Payment For You.

Some things seem too good to be true, but you might be surprised. Recently, the planets have started to align in favor of the first time homebuyer. The combination of low prices in the San Fernando Valley, FHA-backed loans at 3.5% down, and the Federal Government’s first time homebuyers’ tax credit (up to $8,000), means that Uncle Sam is quite literally willing to pony up for you to “buy” a house if you close before December 2009. Better yet, recently announced rule changes mean that even if you don’t want to (or can’t) pay any down payment out of your own pocket, the tax credit means that the Federal Government is willing to pay for the entire down payment on a property costing up to approximately $225,000, provided you get a FHA-backed loan. (Do the math yourself.) As the Wall Street Journal’s online edition reported on May 29, 2008:

“The policy change means home buyers, who use FHA-backed financing, can get a short-term loan to help buy a home. The loan is repaid a few months later, after the buyer files an amended tax return and receives the credit.”

The government’s rather heroic attempt to pump a bit of air into the deflating housing bubble appears to be having a major influence on first time homebuyers. I’ve heard of parents buying properties for their college students to take advantage of the tax credit. Perhaps you should ask yourself: Do I want Uncle Sam to make my down payment?

first time homebuyers

Short Sales: Walk, Run, or Run Away?

A short sale is a sale in which the lender(s) agree to take less than the amount owed upon the sale of the property. The problem in a nutshell: because so few short sales have historically resulted in closed deals they can amount to a colossal waste of everyone’s time. The Washington Post has written about the problem: “Why Short Sales Stumble.” There are a number of reasons for problems with short sales, some of which can be blamed directly on the financial institutions involved (which, in their defense, are typically overwhelmed these days), but others can be blamed on good old-fashioned PPP (poor prior preparation). In the words of the Washington Post, “Too often, sellers and their agents are calling a listing a ‘short sale’ or saying that ‘offers are subject to third-party review’ without even having talked with the lender. They plan to get a live fish on the hook before they try to tempt the lender. Do you want to be that fish?” While banks were formerly very reluctant to approve short sales, the word on the street is that they have found religion, and are now more willing than ever to short sell than ever, to avoid adding to bloated REO inventories and the costs of the foreclosure process.

How can the buyer – or, more likely your agent – separate the wheat from the chaff? Frank Llosa, a Virginia-based real estate broker (and blogger) has created an excellent and very comprehensive screening list of screening questions for the listing agent of a short sale, (assuming, of course, you can get them to answer). Mr. Llosa’s suggested email questions include:

1. Have you closed a Short Sale before?

2. Have you requested and received the short sale package from the bank, including the hardship letter?

3. Have you sent the package AND have you confirmed receipt?

4. What communications, if any, have you had with the bank?

5. Has the bank approved the list price?

6. Have you received any other offers that you are waiting to hear back from the bank on?

7. Does the loan have PMI on it? (Private mortgage insurance)

8. [Are] there one or two trusts? Any other liens?

9. What are the names of the banks? Are these FHA or VA loans?

10. How long do you estimate that the lender will take to provide an answer to an offer?

11. Has your seller completely stopped making payments on their loan.

Unfortunately, as even Mr. Llosa concedes, the chances of getting a response to all of these questions is not great, particularly via email. I prefer to just cut to the chase and see if the property is worth further evaluation with a “quick and dirty” list. Here’s the minimum questions I ask before conducting any further investigation or even thinking about showing a short sale to a client – most likely over the phone:

1. Have ALL the lenders involved approved the short sale price? If not, why do you think they will?

2. Are there any other offers on the property?

3. Do you know how long the lender typically takes to respond to an offer?

If the answers to these questions are satisfactory, and everything else pans out, I may well advise my client to put in an appropriate offer. My next advice is to move along, and continue the house-hunt as if the first offer does not exist. The reason for this is that it can easily take three months or longer to even get a response on a short sale offer, and I don’t want my clients to miss any deals that come along in the meantime. If they find something else, we simply withdraw the original offer. (As you can tell, the short-sale game is particularly suited for investors: I’m not expecting my investor clients to fall in love with a property: if it makes sense, they buy, if not, they should move on. As someone once said, “real estate deals are like buses – if you miss one, there will be another coming along any minute.”)

first time homebuyers

The New Real Estate Feeding Frenzy – Are You A Shark or A Minnow?

The last investor-friendly house we looked at was a fixer in West Hills. Within a couple of days of it hitting the market, it had attracted 8 offers. I’m confident it will sell for well over asking price. No wonder that the San Fernando Valley Business Journal reported on May 11, 2009 that “first time homebuyers and investors are snatching up an increasing number of homes in the San Fernando Valley . . ..” It is well past the stage of a few isolated occurrences. When I recently looked at two months worth of closed transactions in Encino, the average sold to asking price was slightly over 100%. These are strange times indeed. When you figure that some of the inventory had to be “normal” – i.e., not distressed properties, that typically sell for some kind of a discount from asking, the fact that the average house sold for more than asking gives you an idea of the way that the REOs and short sales are affecting the market. How to play this game? You have to be aggressive, have all your financing together (or cash – best case scenario) and jump on a property before someone beats you to the punch. The days of waiting around to see if someone else bids are history — at least if the property is distressed.

first time homebuyers

Is this the “Golden Age” for First Time Homebuyers?

“Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.” So says the New York Times.

Something tells me that a lot of potential homeowners aren’t thinking this way. Perhaps, instead, you feel that it would be completely nuts to be considering buying your own place, given the awful state of the economy? I feel your pain. In fact, I’ve been there myself: my husband and I bought our first home in 1996 at a time when things were not looking good at all. The market had never even started to recover in the six years since the crash that started in 1990. We certainly never bought the house thinking that we’d get any kind of decent appreciation out of it: we bought in order to have our own house, and, frankly, to save a bit on taxes. In retrospect, it has turned out to be the best investment of our lives.

Will you have a similar experience? Only time will tell, but the only way to experience the benefits of homeownership is to get into the game. Find a starter house that you can afford, and make the most out of the government programs designed for first time homebuyers.

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