How can I qualify to buy my first home?

Buying your first home is such an exciting experience! At first it may seem like a big puzzle, but it isn’t that difficult at all. However, having a great agent and a reputable lender can help putting it all together pain free.  Regarding the financing you will have to meet some requirements, including coming with a small amount of cash for your down payment and closing costs.  You will have to be credit worthy, have a stable employment history and you must be able to afford the mortgage monthly payment.  Some of the criteria used to measure these may vary from lender to lender.

DOWN PAYMENT.  There are several ways to finance your home, depending on what program you may qualify for.  The Veteran Administration offers a mortgage (VA Loan) guaranty program with $0 down.  This program is available to eligible service members, veterans, reservist and certain unmarried surviving spouses.  The program requires an upfront funding fee that can be added to the mortgage.
The next lowest down payment program is a HomePath mortgage, available when you buy a home owned by Fannie Mae (a “repo”).  It requires only 3% of the purchase price and offers very flexible terms.  Down payment can be a gift from family or friend, a grant from a non-profit organization, the state or even an employer.  It’s available for primary residence only but they do finance 2nd home or investment property with 10% down.  This program requires a buyer with an excellent and longer credit experience. No mortgage insurance or appraisal is required.

The most popular program for first time buyers is an FHA mortgage.  The Federal Housing Administration guarantees these loans.  Minimum down payment is 3.5%.  Qualification for one of these loans is a bit easier than any other program.  Down payment plus closing cost can be a gift from any family member.  This program is only available for primary residence and requires mortgage insurance.

Buyers that can afford a higher down payment may benefit from a Conventional loan program.  The minimum is a 5% down payment, but now days these are very hard to get.  It’s usually a 10% down but if you want to avoid mortgage insurance you will need to put down 20% or more.

Finally, there are various Public Housing programs sponsored by the state, cities and non-profit organizations.  Normally, these programs offer down payment/closing cost and renovation assistance.  One of such programs is the City of Phoenix’s Neighborhood Stabilization Program: $15,000 to assist with down payment and closing costs.  Right now they are looking for buyers to use this money.

All of the above mentioned loans require additional funds for closings costs and pre-paids.  These are costs associated with purchasing a home such as credit report, appraisal, lender fees, inspections, title insurance, escrow fees, etc.  You can expect these items to add another 2 to 3% of the purchase price to your total investment.  Most loan programs allow the seller to contribute to this part of the investment so you can ask the seller to pay for them.

CREDIT WORTHINESS.  Your credit history must be clean for the last couple of years; definitely no pending judgments, open collections, repossessions, and no delinquent accounts.  There are mitigating circumstances for having something negative (“dings”) in your history, and these can be explained during the application process.  Having no credit or very little credit history can also be considered a negative and will lower your FICO scores.  The minimum FICO score the lenders will normally accept is 640 for an FHA loan.  We’ve heard some lenders are accepting lower scores, but we suspect they require a higher down payment.  If you are considering buying, pull your credit report before the mortgage lender does and make sure it is accurate.  Any changes to your report may take as long as three months.

EMPLOYMENT HISTORY.  You must demonstrate you’ve had a permanent jog for the last two preceding years.  If you had more than one job, the subsequent jog(s) will have to be related or in the same field.  Recent graduates working in their fields will be given some credit for time spent in college.

AFFORDABILITY.  Under FHA guidelines, your house payment can’t exceed approximately 29% of your gross monthly income.  So lets say you earn $3,000 a month before any deductions, then your maximum monthly payment will be approximately $900.  This amount should include payments to the principal, interest, real estate taxes and insurance (PITI) plus Homeowners Association fees if your prospective home has one.  This is called the “Front Ratio:” monthly house payment/monthly gross income.  Now, this house payment plus all of your other monthly credit debt (auto loans, student loans, credit cards, etc.) can’t exceed approximately 41% of your gross monthly income.  In the above case $1230 is the “Back Ratio:” total monthly credit debt/gross monthly income.  There is some flexibility on these ratios depending on your particular circumstances.

There you have it, a piece of cake… now go and shake your $$ source, check your credit report, call me, and I will take care of the rest… promise!

Rock the Block

Chandler is having a big street party tomorrow Saturday.  The city is closing a one-mile stretch of Arizona Avenue.  There will be two stages of entertainment, a skating ring, activities for the little ones and lots of great gift vendors.  There will be a dunk tank featuring Mayor Jay Tibshraney and other business leaders.  Since the holidays are fast approaching there will be a food drive to benefit two local food banks.  Modern-rock station X103.9 (KEXX-FM) is sponsoring the main stage, bringing four artists from Valley-based Sundawg Records: Mergence, A Life of Science, the Weiley One and Fayuca. Also performing is cover band Wikked Rev, which performs a mix classic rock and metal tunes.  Check it out.  Time: noon to 8:00 p.m.

In a home, location is what matters. Part 3

The Home

Now lets talk about the location of the home within the neighborhood or subdivision. You may not care about some of the following negatives for varied reasons, but when selling, you will narrow the pool of buyers willing to accept a negative location. Like we said before, these lots originally were sold cheaper as less desirable locations. You got a fair deal when you purchased, and when selling, you must pass it on. The most common objections given are:

• Backing or facing to a busy street or highway. Noise, pollution and safety are the obvious concerns. The worst location being on the corner of two or three busy streets.
• Orientation of the home. Here in Arizona’s hot weather a North/South orientation is preferred.
• Power lines. Whether on the back or front of the home, they are considered an eyesore, not to mention the perception that electromagnetic fields are a hazard to human beings.
• Backing up to commercial or industrial property. Again, noise and safety.
• Lack of privacy. Backyard or/and pool face two story home(s).
• Being at the end of a street “T.” Oncoming traffic that is more evident in the evenings.
• Pests. Scorpions, rats and pigeons can be a localized hazard.
• Fissures and Subsidence. A problem the Valley is facing in some areas as we deplete ground water. After it is drained, the soil compacts and gives away creating fissures and sink holes.

After finding a home in a great location, you are now ready to buy. One last thing you may want to do is talk to your immediate neighbors-to-be; ask them what they think of their neighborhood. Neighbors will tell you things about the neighborhood in a more objective way because they’re not selling you anything. In the process you will get acquainted and conclude they could be wonderful neighbors to have.

How reliable is Zillow?

Zillow Zestimate Zonked

Frequently our clients, sooner or later, will allude to some listing or estimate they got from Zillow.  We as Realtors® dismiss the website just as net entertainment. When it comes to real estate, the compilation of this data will not necessarily provide you with a reliable, meaningful or accurate value for any given property.  From Zillow:

“The Zestimate (pronounced ZEST-ti-met, rhymes with estimate) home valuation is Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value. The Zestimate is pulled from data; your real estate agent or appraiser physically inspects the home and takes special features, location, and market conditions into account. We encourage buyers, sellers, and homeowners to supplement Zillow’s information by doing other research such as:

• Getting a Comparative Market Analysis (CMA) from a real estate agent* Getting an appraisal from a professional appraiser.
• Visiting the house (whenever possible)
• Our data sources may be incomplete or incorrect; also, we have not physically inspected a specific home. Remember, the Zestimate is a starting point and does not consider all the market intricacies that can determine the actual price a house will sell for.”

So, if you are interested in getting some general and preliminary information about a particular area or neighborhood, then Zillow is a cool site to surf. (Zillow does not offer live information so there is a statistical lag time, sometimes months old.) However, if you are making an offer, you must get the help of a real estate agent familiar with the area to help you make use of the information.

We have found Zillow to have wide fluctuations in their estimates that do not reflect the facts on the ground. Only 33.3% of the 1.5 M properties listed in Zillow with Zestimates, in the Phoenix area, come within 5% of the actual sales price.

Agents, for instance, can’t determine the condition of a property by the listing description or even by the pictures that accompanied it. These sometimes, we find, are slightly manipulated for marketing purposes without having to be misrepresentations, but a subjective view of a given property. Therefore a formula can’t account for all of the nuances and variables, just as it cannot visit the property to confirm any of its presuppositions. So, we give Zillow 3 stars out of 5.

If you need a real Market Analysis on any property in Metropolitan Phoenix, we would be more than glad to email you one… free of charge.  Since we do not take listings, you can rest assured that no one is going to follow up to solicit one.

In a home, location is what matters. Part 2

The Neighborhood

Next you must consider a neighborhood. You may want to know its boundaries and what lies adjacent to it that may diminish its value (Google it). You may not want to live next to a dairy farm, a smoke stack, a city waste dump, within the noise boundaries of an airport or backing to an obsolete trailer park. You should check and search online for crime statistics of the area, and for the location of sex offenders as well.

Notwithstanding the recent drop in gas prices, distances have become very important. Is there easy access to major highways? How far do you have to drive to work, to the supermarket, to the mall, the airport, downtown, and other amenities? Is mass transit an available option? We helped a buyer who actually visited the local grocery store, strip malls, a restaurant and the mall, and later decided it was not where she wanted to live. If you have children, is it a family-friendly neighborhood? Are there lots of children? Are the schools close? How are they rated? Are you close to the bus stop? Any parks or green areas nearby?

After the vicinity, the pride of ownership should be the most telling clue about a neighborhood. If everyone is taking care of their homes it will help maintain values. In this regard I must mention the often-despised HOA (Homeowners Association). They enforce the developer’s “CC&R’s” (Covenants, Condition and Restrictions), a document detailing the obligations and rules by which you will abide to be a member of the neighborhood. Rebels and advocates of free expression don’t do well here. But a frequent omission in discussing the rules is that they were put in place to extend the vision of the builder and its architect. Their holistic approach supersedes anyone’s right to express their individual taste. This integration adds a reliable measure of value to the neighborhood, where you would expect an “enforced” and permanent pride of ownership. The cons can usually be traced to self-managed (vs. professionally managed) associations made of community volunteers who run for office and are summarily elected with a small participation from the whole. These volunteers are in effect running the neighborhood on your behalf the best they can. So read the CC&R’s before you buy in one of these subdivisions.

In a home, location is what matters. Part I

“In a home, the site is what matters.” Lao Tse, “Tao Te Ching” (400-600? B.C.).

Although Lao Tse was making a spiritual point, the metaphor evidently was already in use in the literal sense.  We are sure, far back, our hairy ancestors had to deal, on a daily basis, with the question of where to locate their temporary shelters.  The proximity to resources, the danger of predators or unfriendly “neighbors” made the consideration of location the oldest and most important criterion in choosing a site for a home.

These days there are no wild beasts roaming around, and unfriendly neighbors don’t really arm themselves to take over your home, but today as eons ago, the value of a location remains central to the value of your home.  When a new home is built, the builder will set a premium for the best locations and a discount for the worst, such as a lot backing to a busy street.  Location, as used in this context, is a very broad term that may include living in a particular city, neighborhood, or a school district. The consideration of location may also include your access to resources, work and transportation.

The choosing of any location is a decision consistent with each and every buyer’s unique circumstances. We remember a client who did not mind buying a home that faced busy 7th Avenue in downtown Phoenix. She said the noise and bustle reminded her of Chicago and that it was very comforting to her.  However, the important thing for home buyers to remember is that, the better the location the better the investment.  A desirable location is always in demand and your home may sell faster and have a better resale value.

 

What does the future holds for home prices?

Buyers and sellers don’t realize that historically home prices in the USA have fluctuated in wild cycles, just like everything else. We could plot a long chart that will show historical home prices, adjusted for inflation, but while surfing the web, we found this animation that will give you a fun visual understanding of these cycles. ( Watch the bottom right hand corner as the years change.  So hang in there.

Why do you want to own a home?

The local market is absolutely the best that it has been in several years, especially for first-time buyers. Interest rates are historically low, prices are the most affordable they have been in the last six years.  There is plenty of inventory to choose from, mostly bank repos, where you can get excellent deals.

But before you get all excited, ask yourself why do you want to own a home? The number one reason given is pride of ownership; the desire to have a place you can call your own. A home is a place where you can exercise your right to quiet enjoyment, and where you can express your taste undisturbed; a place where you can raise your family safely and comfortably for as long as you want to.

Then there are the financial reasons. Some of these include tax considerations,
accumulation of equity and buying for investment purposes. But given the actual
market conditions, some of these should be thought of as secondary, and only
viewed as long-term benefits of owning.

You must also ask yourself if you are ready to take the responsibility of maintaining a home. A cost usually neglected during the discussion of your qualifications. The cost of maintaining your home may include: potentially higher water and electric bills, repairs, updating, escalating property taxes, insurance and HOA fees. Unlike a rental, you must plan and commit to a long-term stay because you can never count on selling your home quickly or for a price to recover, at least, your initial investment.

The closer you look at you financial situation, motivations and commitment, the more confident you will feel to jump on the market and score a good deal of
your own.

 

 

Light at the end of the tunnel?

New Home prices on the rise

Earlier this year U of A’s Eller College of Management in its economic outlook for Arizona in 2009-10 commented:

“Arizona’s economy has been contracting since the third quarter of 2007 – a few months before the nation’s economy topped out. Arizona normally enters recessions later but this time it’s leading the rest of the country, along with California, Nevada, and Florida…”

“Arizona’s unemployment rate in October was 6.1%, up sharply from 3.9% 12 months earlier. That remains well below the rates posted during the mid-1970s and early 1980s recessions, when the unemployment rate reached 13% and 11%, respectively. We look for the rate to approach 8% during this recession.”

“How do we find solace in today’s depressing environment? The answer is: we’ve been here before and often when things appear bleakest, recovery is not too far off. Recessions are messy and downright scary, but they eventually come to an end with the stage set for the return of prosperity.”

It appears that we are seeing the light at the end of the tunnel. Today it was reported that the median price for a new home sold in the Phoenix metro area is increasing, according to data released Monday by RL Brown Reports, a Phoenix research firm.

The median new-home sales price in February was $210,000. That figure has been moving slowly upward since August 2008, when the median was about $200,000.

Analysts at RL Brown said:

“The stabilization and hint of improvement have been accomplished in the face of a continued decline in resale median prices and the extreme numbers of bank-owned distressed property sales that are occurring in the market, making it even more significant,”

The resale market was really brisk last month.  Up a whooping 34%!  There were 5,381 resales posted in February, compared with 713 new home sales. In February 2008, there were 3,372 resales and 1,183 new home sales. So, while the median price for new homes may be going up slightly, the number of new home sales dropped by nearly 61 percent from February 2008 to February 2009. Resales, however, increased by nearly 60% during that same period.

The data suggest a recovery could be around the bend, according to RL Brown’s Phoenix Housing Market Letter.

“We can’t tell for sure, but it is becoming more likely that we are at or near the bottom of the new housing crash here in metro Phoenix,” the report stated.

Is it a good time to buy?

It only takes one look at the numbers to understand that the hemorrhage of foreclosures is the single most important element destabilizing our local market.  The ASU Morrison School of Business just issued their assessment of the local activity: “Greater Phoenix resale numbers show foreclosures not slowing.” In it Jay Butler, Director of Realty Studies is quoted as saying:

“The local housing market will continue to be vexed well into the next year by eroding consumer confidence, brought on by a weak economy, possible job losses and tighter mortgage underwriting guidelines…”

The report further states that:

“The declining prices have piqued interest for potential investors and owner-occupants, especially in the lower income ranges. For the traditional market, the median price in January was $136,000 ($243,000 for January 2008), while the foreclosed properties had a median price of $135,000 ($208,250 for January 2008). “

Now that Mr. Obama has put in place a program to deal with the effects, and slow the number of foreclosures, we see a number of positives for our local market. The Obama plan will not cover every default or foreclosure but may cut them in half, so we should experience a reduction in inventories in the very near future.  Interest rates remain low and the FED has promise to do everything they can to keep them there.  For first time buyers $8,000 credit if the home is purchased before December 2009.  Free money.

On February 25, HUD raised the Maricopa County maximum FHA loan amount for a single residence from $271,050 to $346,250.  This change, which is good through the end of the year was signed by President Obama as part of the $700 billion plus stimulus package.

Prices are so low that monthly rents vs. monthly payment are running so close and back to historical levels.  We recently helped a first time buyer to purchase a home, 1300 sq. ft., 3BR, 2BA, 2-car garage (Baseline & Gilbert Rd).  With rents in the range of  $0.60-0.70 per sq. ft., this home should lease for around  $780-910 a month.  If we use the stick of 15 times (historical average) the annual rent to calculate the purchase price, the price for this home would be in the range of $140,400-163,800.  We paid $102,000!  The PITI payment: $720 a month. And to top it all, our buyer will get an $8,000 check after he files his income tax returns. We think is a great time to buy.