MORTGAGE RATES REPORT

San Diego Housing Approaches Rent Vs. Own Parity

Should you buy a home or rent one, in San Diego? 

As always, that depends.  If you're looking for a home in La Jolla, you may never find a one which is less expensive to own than rent, in today's dollars.  The physical beauty of the seaside burg is stunning and La Jolla has traditionally traded at a steep premium to rent v. own parity.

Nick Timiraos suggested that buying conditions are getting better for San Diego, in the Wall Street Journal:

Home ownership is also looking more affordable because after several years of declines, apartment rents will rise by around 4% this year, says Mr. Nadji. He says rents are poised "to pick up even more momentum across the country next year."

Rising rents are one reason a would-be home buyer should consider purchasing a La Jolla home rather than waiting for prices to reach parity there.  If inflation kicks in, and onc day it will, rents could increase a level far above what the mortgage payment, for a La Jolla home, would be today.

Even cities where it is still cheaper to rent than own have seen big boosts in affordability. In San Diego, the monthly cost of owning a home has averaged around 83% more than renting over the past two decades. During the third quarter, owning was 22% more expensive than renting, according to John Burns Real Estate Consulting

Take note of this figure.  In many San Diego sub-markets, (mostly the beach cities), housing prices will never reach parity with today's rents.  Like the La Jolla example, inlaftion may cure that in 2-3 years.  Still, some San Diego County markets have already reached parity meaning, it's cheaper to own rather than rent.  Even in some beach cities, like Oceanside or Imperial Beach.

I searched active Oceanside homes for sale and found one which is listed for $189,000.  With about $7,000 down payment,  and an FHA loan with a 4.88% APR, the monthly mortgage payment would be $1250, some $50-$100 below what it might fetch in rent.  That's one of many Oceanside properties which are at or below parity for the rent V own model.

I also found plenty of similar opportunities while searching for homes for sale in Chula Vista.  There were many more recently built homes, which command premium rents, listed under $250,000.

San Diego entrepreneur Bill Lyons intends to make these home searches easier when he releases his new website, Revestor.com.  Revestor organizes current listings, by capitalization rate or cash flow, to offer homeowners a chance to "rate" properties, by comparing the listed price to current rental data.

San Diego is still selling at a slight premium but this may be as good as it gets.  If mortgage rates continue to stay low, because of the Fed's printing press and quantitative easing, the bubble for low rates will soon pop, and inflation will kick in.  Locking in a price, and a low mortgage rate, might be the best way to insure you won a piece of our sunshiney paradise.

Can I purchase a home, with a new VA mortgage, if I have not paid off my existing VA loan and don’t want to sell the property?

I was asked this question today, from a Naval officer, relocating from the Washington, DC area.  The answer is...maybe.

A veteran might be able to use any remaining entitlement on a new home loan but will be required to certify that the new the home is his primary residence.   In San Diego, our VA loan limit is higher than most of the country ($537, 500 vs. $417,000).  This means that it is quite possible to buy a home, with the remaining eligibility.  Roughly, the veteran should back out the original loan amount, from his old home, from the local loan limit ($537,500 in San Diego County)

In this Naval officer's case, he purchased his home in DC, with a VA mortgage amount of $230,000.  This suggests that he may be able to purchase a home, in San Diego, for zero-down payment, for $307,500.  This looks good but he has two conditions which he must satisfy:

-He has to definitively prove that the old property is not his primary residence.  In this case, the Naval officer can furnish us with an active lease and cancelled checks, from the tenant, to prove he is receiving rent.  Furthermore, we can show that the utilities in the old home are in the tenant's name.

-He has to prove that his relocation was involuntary.  Had he not been active-duty, a job relocation letter might be sufficient if the relocation was due to unemployment.  Since he is active-duty, a copy of his PCS orders sufficed.

A veteran can not get the full entitlement restored, for a VA home loan,  until the VA loan for the other property is paid-off or refinanced into a conventional loan. 

Lower VA Mortgage Funding Fees Implemented November 18, 2011

N.B:  On the day before I published this, HR 674 passed, reverting the funding fee amounts to the “old” levels.  It was updated in VA Circular 26-11-19, published November 22, 2011.  The “new” lower funding fee schedule was in effect for three days, from Nov 18-21.  Sorry for the confusion.

The Veterans  Administration lowered the funding fee it charges, to insure loans made to active-duty or retired military personnel.    The new funding fee schedule distinguishes first-time users and repeat users and between active-duty, reservists, prior military.

Can you use your VA loan guaranty benefit more than once?

Of course you can.  The VA even allows for two outstanding loans (under certain circumstances) but generally, veterans can only have one VA loan outstanding.  A common misunderstanding is that a veteran can only use a VA loan once.  The benefit can be used as many times as the veteran wishes.

Can you still get a zero-down VA home loan, again?

Indeed you can.  The new funding fee schedule, for zero-down loan purchases, is only 1.40% for first-time users who are active-duty veterans and 1.65% for reservist/guardsmen veterans. Zero-down home loans, for the second and subsequent VA home loans, require a 2.8% funding fee for all veterans:  active duty, reservists, and guardsmen.

Can you lower the funding fee if you use a down payment?

Yes you can.  If veteran home buyers put 5% down, with a VA loan, the funding fee drops to .75% for active duty veterans (1.0% for reservists and guardsmen).  For a 10% down payment, the funding fee drops to .5% for active-duty veterans and .75% for reservists and guardsmen.

Here is a list of the current and new VA funding fees scheduled to take effect on November 18, 2011.

Use/Purpose	Down Payment	Active Duty Veteran		Reservist/National Guard
		Old	New	Old	New
First Time	Less than 5%*	2.15%	1.40%	2.40%	1.65%
First Time	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
First Time	10% or more	1.25%	0.50%	1.50%	0.75%
Subsequent	Less than 5%*	3.30%	2.80%	3.30%	2.80%
Subsequent	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
Subsequent	10% or more	1.25%	0.50%	1.50%	0.75%
Interest Rate Reduction	N/A	0.50%	0.50%	0.50%	0.50%
Assumptions	N/A	0.50%	0.50%	0.50%	0.50%

 

How Long Must I Wait, After A Short Sale, Before I Can Get A Mortgage?

Mortgages can be approved as early as one day after a short sale but the down payment requirements and terms are onerous.  San Diego private money lenders will make loans the day after a short sale but usually require at least 30% of the purchase price as a down payment.

Agency conforming loans (formerly known as conventional loans) can be secured in as little as two years after a short sale if the borrower has at least 20% of the purchase price for a down payment.  If the borrower has less than 20% down payment, then the waiting period extends to five years.

FHA loans require that the borrower wait at least three years, like a foreclosure, unless the previous loan had no late payments and the deficiency balance was paid-in-full (which sort of defeats the purpose of a shor sale).

VA loans can be secured as soon as two years after a short sale unless the seller is an active-dutymember using the HAP program (offerered to active-duty members who had a permanenent change of station <PCS>)

Proposed Good Faith Estimate Should Be More Consumer Friendly

The Consumer Financial Protection Agency just released its proposed Good Faith Estimate (GFE) disclosure form.  The form will combine the best parts of the original GFE (which we still issue) along with the "new" GFE (which is confusing and we issue, per disclosure regulations).

This six-minute video will walk you through it:

Owner-Occupancy Ratio in Condominium Complexes

"A big Bank in America declined my loan application because the condominium complex owner-occupancy density was too low.  I have great credit, five times the payment in monthly income, and I"ve saved my own money up.  How can I get a mortgage to buy this condominium?" 

Let's start by explaining why the big banks in America are declining these loan applications.  While you are an excellent borrower, the collateral, in this case, the property, is part of a  common-interest development (that's lender-speak for condominiums, co-operatives, and planned unit developments).  What that means is that the property you are purchasing is subject to a layer of "opt-in governance" and the composition of the "opt-in entity" could have material effects on the value of the properties in that "opt-in entity".

That was a lot of fancy speak for this statement; a high percentage of renters is less desirable because the owners of the property (investors) have less "emotional interest" than  owners who would make the property his/her home.

Stated differently, an investor-owner is less likely to pay his/her HOA dues, if he/her ran into financial difficulty, than an owner who makes the property his/her home.  It's a risk factor.

Does that mean its a dead-deal?

Absolutely not.  We can make loans on those condominiums if the purchaser puts 25% down payment and plans to make the property his/her home. 

If the property is approved by the Veterans Administration, and the buyer has eligibility for a VA home loan, the owner-occupancy issue is a moot point; the VA doesn't consider owner-occupancy to be a risk factor.

If the buyer wants to pursue an FHA loan, and the complex needs FHA approval, the owner-occupancy density  must be 51%.

Owner-occupany is not the only reason a property in a common-interest development might be declined for high, loan-to-value mortgages.  HOA financial stability, pending litigation, reserve and repair plans, and general maintanance all come into play.  I'll discuss those, in more detail, on this site, later.

VA Home Loans, FHA Mortgages and a Government Shutdown

Congress is quibbling about the size of the token cut to the federal budget,  The stalemate could force a shutdown of the federal government.  How will that affect VA home loans, FHA mortgages, and conventional residential loans?

VA home loans are insured by the Veterans Adminsitration which receives its annual appropriation in advance.  As such, most veterans services, including VA home loans, are funded through FY 2011.  It is beleived that VA home loans will still be insured for the next 8 months and no interruption will occur.

Conventional mortgages require a 20% down payment and, as such, should be unaffacted by the shut down.  Lenders can and will "warehouse" those loans until the can be sold, in bulk, to Wall Street.

FHA mortgage fundings may be arrested during a federal government shutdown. FHA mortgages are insured by the Federal Housing Adminsitration (a division of the Department of Housing and Urban Development).  All functions of that department are considered "non-essential" so it is believed that FHA will cease operations.  Lenders can (and some may will) fund FHA loans, for a short period of time, in anticipation of obtaining the FHA insuarance in the near-term future but it is unlikely they would continue to fund beyond the end of the month.

What does this mean to you?  Lenders will probably be very choosy with the loans they fund.  We could see them refuse to take normal risks and susoend or decline loans which are not "plain vanilla" files.  HIgher debt-to-income ratios, marginal credit scores, and unclear exceptions to the FHA guidelines will most likely be shunned during a government shutdown.

 

2011 VA Loan Limits for San Diego, Orange, and Los Angeles Counties

San Diego 2011 VA loan limits increased to $537,500 while Los Angeles and Orange counties had a slight decrease to $700,000.  Riverside, San Bernandino, and Imperial counties remain at $417,000. These limits are the maximum base mortgage amount for a zero-down VA home loan.  The 2011 VA loan limits for all California counties:

• ALAMEDA $1,000,000
  ALPINE $480,000
  CONTRA COSTA $1,000,000
  LOS ANGELES $700,000
  MARIN $1,000,000
  MONTEREY $431,250
  NAPA $530,000
  NEVADA $431,250
  ORANGE $700,000
  SAN BENITO $843,750
  SAN DIEGO $537,500
  SAN FRANCISCO $1,000,000
  SAN LUIS OBISPO $528,750
  SAN MATEO $1,000,000
  SANTA BARBARA $710,000
  SANTA CLARA $843,750
  SANTA CRUZ $706,250
• SONOMA $478,750
  VENTURA $562,500

Five counties, in the San Francisco Bay area remained at a $1,000,000 VA loan limit.

Forbearance An Option For Active Duty Service Members

Fannie Mae announced its Wounded Warriors Forbearance Program:

At an event today at the Pentagon, Fannie Mae (FNMA/OTC) and the U.S. Army announced new initiatives to help service members who are struggling with their mortgage payments avoid foreclosure. The effort includes a mortgage payment forbearance of up to six months where the death or injury of a service member on active duty causes a hardship for impacted military families with a mortgage obligation.

One positive feature is that Fannie Mae will suspend credit reporting during the forbearance period:

Service members or surviving spouses who may be eligible for the special forbearance are to contact their mortgage company. The mortgage company may grant forbearance of up to six months under Fannie Mae's "Unique Hardships" guidelines with Fannie Mae's approval. Under forbearance, the mortgage company may reduce or suspend the borrower's monthly payments for the specified period. Credit bureau reporting will be suspended during the forbearance to minimize any derogatory impact.

It is important to note that the program is NOT sponsored by the Veterans Administration.  The VA offers similar options for wounded service members through its partner lenders.  The VA encourages wounded veterans or surviving spouses to contact the lender if they are unable to make payments as well as notify the regional VA lending center.  While the lenders often offer forbearance agreements, they usually report the delinquencies to the credit bureaus.

Veterans facing financial difficulty might think these programs are complimentary when in fact, they are exclusive.  The first step is to always contact the loan servicer (the company to whom you make payments).  Always ask the loan servicer which entitiy "owns" the loan (investor or guarantor).

 

 

 

Look For A Mortgage Consultant; Not A Mortgage

Okay, the last secret I told you about was how to compile a credit and income package for a lender so you could get accurate quotes and pre-approvals.  Now, I'm going to tell you how to shop for the right loan originator. 

I have always stated that you should be shopping mortgage consultants not loan programs but this double-barreled article will help you do both.  Understand this first.  You are NEVER going to get the absolute best rate offered on a home loan; it's impossible to determine what "best is:

READ:  You'll Never Get The Best Rate

Instead, you should be shopping loan originators.  You should spend some time online and on the phone getting to know the originator before you give her a copy of your "credit" package to receive a quote.

READ:  Borrow Money Like You Would Buy A Cell Phone

You should get a list of 5-6 loan professionals and spend 10-15 minutes on the phone with them.  Where do you find these people?  Here are some sources for "leads' on good loan originators:

1-  Call Brian Brady immediately 858-777-9751!  Okay, I'm sort of  kidding but I can be a source for you because you have enough interest to read my article this far. My point is that you've already met one originator online.

2- Ask your Realtor for a loan originator whom she trusts.  If you don't have a Realtor, yet, use that as leverage in your hiring process.  Explain to the 2-3 Realtors you're interviewing that you consider their recommendation of a loan source to be an integral part of their service offering; you'll get a great response.

3- Go into your local bank and tell the teller that you are thinking of buying property.  That teller gets paid $25 to refer their in-house mortgage salesperson so he'll be all worked up.

4- Call your CPA or tax preparer and announce that you need a home loan.  If the CPA offers to help you with it, get a new CPA.  There is a growing trend among tax professionals to provide financial services like mortgages and investments. I can't speak too intelligently about the investments side but there are two problems with CPAs offering home loans:  (a) they offer horrible advice.   (b)  their inexperience usually ends up costing more.

5- Stockbrokers and financial planners are usually good sources.  These guys understand investments and leverage so they know a few of us who can integrate your mortgage into your financial plan.  I have found that when I work with a stockbroker, the client gets great advice and a loan that makes sense.  if you don't have a stockbroker, ask the richest person you know for a name (I'm not kidding about this). Some stockbrokers offer mortgages; again, stay away from that for the same reasons as CPAs.

6- Ask someone who owns more than one property who their mortgage gal is.

7- Ask a small businessperson (with whom you're friendly) who their mortgage source is.

8- Ask your brother or sister (or cousin or parents). 

Cool!  Now you have a list of 6-8 mortgage originators.  Should you print off your package and send it to them?  Should you e-mail each of them and ask for a quote?  Hold on, amigos !  Remember I said to shop for loan originators and not loan programs?  The loan terms shopping comes after you've isolated 2-3 originators with whom you want to do business.

My next article will tell you how to interview an originator in 15 minutes or less and be certain that you have the right people.