Home Buyers Try to Beat "JUMBO" Loans Squeeze

By Linda Stern

WASHINGTON | Wed Apr 20, 2011 5:52pm EDT

WASHINGTON (Reuters) - Bethany and Karl Schreiber are hunting for a nice big house in the pricey Washington, D.C., suburbs and they are facing a deadline: In just a few months their third child will be born, and the tiny two-bedroom they've been inhabiting will officially get too small.

But there's a second deadline looming for them as well. Beginning on October 1, the government will dial back on the size of mortgages it guarantees in high-cost areas like San Francisco, New York and Washington.

After that, the maximum loan amount that Fannie Mae and Freddie Mac will back is scheduled to drop from $729,750 to $625,500. And that may make mortgages more expensive or harder to get for buyers like the Schreibers, who are shopping in the $700,000 range and would prefer to make a downpayment of 10 percent or less.

"If we wait a year, we may not be able to afford as big a house," Bethany said in an interview. "Rates and housing prices are probably going to go up."

The Schreibers concede their timing is mainly inspired by their own family circumstances. But others may be motivated to act now because of reduced government-backed loan assistance, housing experts say. Those programs were put in force as part of the stimulus package after the housing collapse.

"For people planning on exiting the market altogether (such as retirees), that is a compelling proposition," says Stan Humphries, chief economist at Zillow. Home sellers may have to be patient to get the price they want. The curbs on government-backed loans could, at the margin, reduce the available pool of buyers, he said.

MILLION-DOLLAR DWELLINGS

Anybody who wants a government-backed mortgage for a $1-million home after October 1 may have to come up with a $370,000 downpayment instead of $270,000, says Rob Chrisman, an independent mortgage banking consultant from San Rafael, California.

The deadline will mean most to upper-middle-class buyers and sellers in costly real estate markets where $1 million buys a nice house, but not a mansion.

To be sure, that part of the market is picking up. Real estate agents operating in tonier neighborhoods are reporting brisker business this spring than in recent years.

Sotheby's, which specializes in luxury homes, reports sales making double-digit gains for the first quarter of this year over last year. The National Association of Realtors reported that the sale of homes over $1 million were up 5.1 percent in March over the same month last year.

"We are seeing a normal recovery," said Jed Smith, managing director of quantitative research. "I'm sure somebody will accelerate their activity (because of the expected drop in government-backed loan limits), but I doubt you'll see a lot of acceleration because of that."

"That really isn't on anybody's radar," agreed Linda Chaletzky, the Schreiber's agent, and a specialist on Washington's tonier suburbs. "But things are hopping."

She said she is not worried about the loan clampdown,

"The mortgage industry will find a way around it, because they will have to. If they don't, they will go out of business," Chaletzky said. She expects private mortgage lenders to step in and fill that space when the government backs down.

BIG MORTGAGES

It was only in recent years that the loan limits went so high. Mortgages that are too big to be sold to Fannie and Freddie are termed jumbo loans and are backed privately. Until 2008, all home loans over $418,000 were considered jumbo loans. In that year, a stimulus-focused Congress twice raised the limit on loans the government would back in high cost areas, first to $625,500 permanently, and then to $729,750, temporarily.

Since then, Fannie and Freddie have backed an increasing share of that market. In 2010, so-called "jumbo conforming" loans, those over $417,000 and government-backed, made up 6.73 percent of loan originations, according to CoreLogic.

That top temporary limit was extended twice, but is expected to expire at the end of September.

When that happens, lenders who want to make loans over $625,500 will have to hold onto the mortgage themselves or find private investors to buy them. And while an active and hungry secondary market for these jumbo loans has yet to materialize in the post-crash world, there's some evidence that lenders are preparing to move into that space and pick up any slack that the government leaves.

"There's plenty of money out there," said Steve Hopps, chairman of the California Mortgage Bankers Association.

Private lenders are preparing to step in, according to Guy Cecala of Inside Mortgage Finance, a research firm. In the last quarter of 2010, private lenders originated more loans over $417,000 (the traditional jumbo market) than did government agencies, he said.

The lower loan limits will leave about $10 billion more in loans for private lenders to handle, reckons Cecala, and he expects lenders to go after the market aggressively.

BIGGER DOWN PAYMENTS

Investors like the fact that jumbo loans tend to be safer and more profitable than smaller ones. The privately-backed mortgages require bigger downpayments (currently about 30 percent of the home's value, instead of the 20 percent more typical in less expensive loans), which adds security.

Also adding to their allure, the loans carry higher interest payments; the spread between the so-called conforming loans backed by Freddie and Fannie and jumbo loans is running about 0.5 percentage points higher, said Cecala. Furthermore, a higher proportion of jumbo loans are made on a variable rate basis, which is less of burden for holders, Cecala said.

Going still higher in the homes market, there will be less impact from the shrinking jumbo. Many buyers of multi-million dollar homes do all-cash deals and are relying on cash more than ever before, according to Stan Smith, a real estate agent who works in Beverly Hills area.

The biggest impact might be limited to that space and those neighborhoods occupied by people like the Schreibers -- folks who see themselves as middle class but in very expensive areas.

"I see borrowers, if they want that kind of loan, paying a little more," says Chrisman. "But it's not going to be a life changing event for a couple of orthopedic surgeons in Beverly Hills."

(Reporting by Linda Stern; Editing by Richard Satran)

Please keep in mind that I’m always available to serve you and others with financing needs.

For more helpful resources visit BayAreaHomeBuyersInfo.com!

Home Projects That Pay- Bay Area Real Estate

If you’re thinking about spending your money on a remodeling project, it’s comforting to know that the improvement will pay you back when you sell your home. To help you make the tough calls on where to spend, “Today’s Homeowner” magazine identifies some projects that will return a substantial portion of their cost if you move.

1.      Minor kitchen remodel

2.      Bath remodel

3.      Deck addition

4.      Siding replacement

5.      Home office addition

6.      Window replacement

Luxuries that are likelier to improve quality of life rather than resale value are built-in media center, extra fireplace, hardwired security system, glassed-in porch, screen porch, gazebo, fiberglass pool, concrete pool, hot tub, tennis court, upgraded landscaping, vinyl-lined pool and sauna.

Please keep in mind that I’m always available to serve you and others with financing needs.

For more helpful resources visit BayAreaHomeBuyersInfo.com!

 

Maintaining good credit - Bay Area Real Estate

Here are a few simple rules for keeping your credit in good shape:

·         Pay your bills on time. Most lenders look at whether you’re on time or late with your bills. If you’re currently behind, catch up before applying for credit.

·         Don’t be too close to your credit limits. The more cards you have close to the limit, the more of a risk you are to lenders.

·         Cancel any credit cards that you don’t use. If you have several, even with zero balances, you’ll have difficult time getting additional credit.

·         Get a copy of your credit report and correct any errors on an annual basis. One in 4 credit files contains errors. Call TRW, Equifax, or Trans Union for obtaining a copy of your credit report. Be sure to dispute any errors by inserting up to 100 words on the report to explain your side of the story.

·         Find out how many inquiries are on your credit report. Every time you apply for a credit card, an inquiry is included. If too many credit card companies inquire at once, they may be suspicious about your intentions. If you have 5 or more inquiries in the past 6-8 months, wait a few months before applying for credit.

As a lender, I may be able to help you clear up any discrepancies you discover on your credit report.

Please give me a call if you have any financing needs or questions or visit www.BayAreaHomeBuyersInfo.com.

Tips for Managing Debt- Bay Area Real Estate

When it comes to managing your money, is your goal to get out of debt?  If so, what do you want to accomplish financially once you meet that goal?  Send your children to college?  Retire comfortably? 

To help you achieve your financial goals, here some tips.

·         To measure your financial health, compare your assets to liabilities.  Add up the worth of everything you own (bank accounts, investments, home, other personal property, etc.) and compare it to the cost of everything you owe (loans, auto loans, student loans, mortgage, all outstanding credit card balances, etc.).  A financially healthy person should have twice as much in assets as in liabilities.

·         To reduce debt, use some of your assets (such as savings) and reduce expenses so that you can pay more towards the debt.

·         If you need extra help dealing with debt problems, contact your local credit counseling office.

·         To keep your spending on track, establish a budget.  Record how you currently spend your money and then figure out how you can change your spending habits in order to achieve your financial goals.

Please keep in mind that I’m always available to serve you and others with financing needs.

For more helpful resources visit BayAreaHomeBuyersInfo.com!

Credit Card Tips- Bay Area Real Estate

As I’m sure you know, Americans are up to their ears in debt, and the credit card got them there!

Perhaps you’ll find these tips helpful for avoiding the credit trap.

·         Know your credit limit based on your income, amount of current debt, and credit history. Your total monthly debt shouldn’t exceed 38% of your monthly income.

·         Carry only the cards you need. Creditors look at how much you’re able to go into debt when they review your record.

·         Determine how much a credit card costs you with interest rate, annual fee, and grace period. Don’t forget the extra fees for cash allowances and late payments.

·         Consider joining a credit union to take advantage of their lower interest rates.

·         If you can’t make your payments on time or if you want to dispute a charge, contact your card issuer immediately and put everything in writing.

·         Don’t get fooled when card issuers lower your minimum payments. It only makes it easier for you to stay in debt and increases the total interest you’ll pay.

Your credit is vital for you now and in the future. If you are carrying substantial debt on high-interest credit cards, we can discuss options to reduce your payments.

Please keep in mind that I’m always available to serve you and others with financing needs.

For more helpful resources visit BayAreaHomeBuyersInfo.com!

Identity Theft Prevention "What Should I Do?" - Bay Area Real Estate

You are probably wondering what you should do if your identity has been stolen. 

First, call the 3 national credit reporting organizations immediately, and place a fraud alert on your name and Social Security number.  This alert means that any company that checks your credit knows your information was stolen, and they have to contact you by phone to authorize new credit. 

This will help prevent most of the damage that can ruin you and could stop the criminals dead in their tracks. 

Many companies do not advertise this, since most just want you to sign up for some sort of protection plan by having you pay large amounts of unnecessary money.

If you haven't yet, be sure to read Identity Theft Prevention Part I- III.  Now you have all the tools to help you prevent becoming a victim of Identity Fraud.

Contact me for your FREE copy of my Identity Theft Prevention and Response Manual and be sure to visit http://www.bayareahomebuyerinfo.com/ for even more helpful resouces.

Identity Theft Prevention Part III- Bay Area Real Estate

There is one thing that nearly everyone carries with them that could easily be one of the most important things you own.  What is this precious item?  It’s your wallet (or purse). 

Basically, your wallet represents your entire life squeezed into tiny leather pockets and flaps. 

Your wallet contains vital information:

Ø  Driver’s license

Ø  Social security card

Ø  Voter ID card

Ø  Credit cards

Ø  Membership cards

Ø  Gift cards

Ø  Any other valuable documents 

With all this valuable and personal information contained in such a small space, you need to be prepared if it somehow goes missing. 

First, photocopy the entire contents of your wallet.  Make sure you copy both sides of each license, credit card, and any other documents that you carry.  A photocopy will protect you by making sure you have all the information in case you lose your wallet or if it is stolen, and need to cancel your accounts.  Keep the copy in a secure location. 

Additionally, here’s a great way to help stop identity theft. 

The next time you order checks have only your first initial (instead of your entire first name) and last name put on them.  That way if someone takes your checkbook, they will not know if you sign your checks with just your initials or your first name, but your bank will.

Next, put your work phone # on your checks instead of your home phone. If you have a PO Box, use that instead of your home address. If you do not have a PO Box, use your work address.

Finally, never have your Driver’s License number or Social Security number printed on your checks. You can add it later if it is necessary. But if you have it printed, anyone can get it.

Contact me for a FREE copy of my Identity Theft Prevention and Response Manual or visit http://www.bayareahomebuyersinfo.com/ for more valuable resources!

Identity Theft Prevention Part II - Bay Area Real Estate

While having credit cards may be convenient and useful for building credit (if used correctly), owning too many can be harmful.  Having too many can actually increase the risk of becoming an identity theft victim.  

Credit card companies are in business for profit.  Since they make their money collecting interest, it only makes sense that they would want to issue as many cards as they can.  Hence, you receive dozens of credit card offers per month.   It is quite simple for anyone with your personal information to request a card in your name. 

Protect yourself by:

·         Monitoring your mailbox so that no one can swipe those applications and by shredding the applications as soon as you receive them. 

·         You can also join a program similar to the “Do Not Call” list.  It is a “Do Not Send Me Junk Mail” list. 

o   Call me to find out about this…

·         Do not give out your personal information over the telephone. 

·         Finally, once a credit card arrives, do not sign it.  Instead, put “see ID” on the back of it so that someone must look at your driver’s license.

Other ways to protect yourself against Identity Theft:

·         When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the "For" line. Instead, just put the last four numbers. The credit card company knows the rest of the number, and anyone who might be handling your check as it passes through all the check processing channels won't have access to it.

·         Try to mail your bills from the post office or from an official drop box.  That way no one can steal your checks from your mail box and use them. 

·         Finally, if possible pay your bills securely online.

To get more quick and easy safety tips call me.  I will give you a FREE copy of my Identity Theft Prevention and Response Manual, or visit BayAreaHomeBuyersInfo.com

Identity Theft Prevention- Bay Area Real Estate

Many of us know the fear and frustration of having our wallet or credit cards stolen, but even worse is having your identity stolen.  According to one non-profit debt counseling agency, some 40,000 consumers each year are victims of this crime, which is a serious type of fraud.

With identity theft, someone will use personal information about you; such as your name, address, social security number or driver's license to apply for credit, utilities, bank accounts, mortgages, even jobs in your name.  Some people don't find out that their identity has been stolen until months after it has happened.

Here are some tips to help you avoid becoming a victim of identity theft:

• Check your credit report at least once a year. Investigate if you find accounts that are not yours.
• Rip-up, or better yet, shred, any credit card applications, bank or billing statements, and any other sensitive documents.
• If you don't get a bill for one of your credit cards in any given month, call the issuer immediately.
• Use a locked mailbox for incoming and outgoing mail.
• Avoid giving out your social security number unless it's necessary.
• Save your ATM and credit card receipts, check them against your statements and then shred them.

If you are a victim of identity theft, act quickly:

• If your wallet or purse with your identification is stolen, notify the credit reporting agencies. They can issue a fraud alert for your file, which can help prevent additional credit accounts from being opened without your permission.
• Initiate a police report. Be persistent, even if the police don't seem interested in your situation.
• Keep careful written records of everyone you speak with, and use registered mail when sending important correspondence.

Contact me for a FREE copy of my Identity Theft Prevention and Response Manual and for more helpful resources, visit www.BayAreaHomeBuyersInfo.com.

Lower Loan Limits Coming October 2011 - Bay Area Real Estate

At the beginning of the mortgage meltdown a couple of years ago, Congress enacted emergency legislation raising the limits on High Balance Conforming Loans.

These loans are designated “conforming,” meaning lower interest rates and typically a slightly easier transaction to get approved and closed when compared to Jumbo (or non-conforming) financing.

The High Balance variety is only available in designated high cost areas, like the San Francisco Bay Area.  Currently the “temporary” limit on these loans is $729,750.

This means that if you put 20% down on a $900,000 home, you can get a conforming loan in the amount of $720,000. Effective October 1, 2011 the emergency legislation expires and is not expected to be extended. This lowers this High Balance Conforming Loan to $625,500.

So, what does that mean to you? If you buy the same $900,000 home and put 20% down, your loan will now be considered a Jumbo loan. Rates on Jumbo loans are typically 1-1.5% higher, so if today you could get that loan for, say, 5% your payment would be $3865.12. The same loan amount using the Jumbo rates would be 6-6.5%, bringing your payment to $4550.89. Over 30 years, that totals over $246,000! The other option would be to put a larger down payment on the property, to the tune of nearly $100,000.

The important thing to note is that if you are looking for a loan to purchase a home, or refinance the one you already have, now is the time to move forward. The limit will remain at the higher point until the first of October, giving home buyers the spring and summer seasons to purchase a property before the high limits are gone.

To find out what the current loan limit is in your area, you can access the Fannie Mae website to see a county-by-county spreadsheet.

According to Alan Russell, a local mortgage professional, “The higher limits have really helped people get into homes here in the Bay Area. Once those limits reduce, there will be fewer options for those trying to get into the real estate market. I’ve been talking to all my buyers and giving them fair warning that the time to move is definitely now.”

Please keep in mind that I’m always available to serve you and others with the best possible home financing programs.

Remember to visit http://www.bayareahomebuyersinfo.com/ for more helpful tips and resouces! 

Considerations for Finding a Larger Home-Bay Area Real Estate

Do you feel crowded in your current home? Is your family growing? Or do you simply want your own tranquil adult retreat within your home? Don’t assume that a more spacious place is out of reach simply because you’re short of cash, income or equity in your current home. Here are a few suggestions:

·         Consider a lateral move to a lower-cost neighborhood. You might think about moving down a couple of notches to a less prestigious community where the same monthly payment buys you a bigger home. However, neighborhoods with the best reputations usually enjoy more rapid price appreciation.

·         Move to a slightly lesser part of the same desirable community. Chances are you’ll pay no more for a larger home than you are putting out for a smaller one. Both properties should gain value at about the same rate.

·         Seek a builder trade-in for your negative-equity home. Many homebuilders will offer special incentives to purchase in their developments.

·         Rent out your home to carefully screened tenants. This could give you time to gain the appreciation you need to eventually sell without losing money.

Please keep in mind that I’m always available to serve you and others with financing needs.

For more helpful resources visit BayAreaHomeBuyersInfo.com!

Pointers for Debating a Move-Bay Area Real Estate

If you’ve come across good fortune lately, you might be tempted to acquire a larger, more prestigious home. However, Ginger Applegarth, author of “Wake Up and Smell the Money,” says those wanting to trade up should think of the future stages of their lives.

Here are some things to think about:

·         If your kids are going off to college, a larger house could give you more space than you need.

·         Be sure you’re adequately financing your retirement. Many retirees need 60% to 80% of the income made during their active working years to maintain the same standard of living.

·         Get a general sense of your current living costs by averaging your monthly outlays over six months. If this simple calculation reveals that your monthly expenses fall far short of your net income, and if your savings and insurance needs are covered, you could be a candidate for a more expensive home.

·         Factor unseen financial positives and negatives into your decision. For example, if your next home is much closer to your job, you’ll cut commuting costs. With a more spacious home, you’ll probably have a higher property tax bill and steeper utility bills. Unless you do the work yourself, you’ll be spending more for cleaning services and yard upkeep. You’re also likely to need more furnishings.

Please keep in mind that I’m always available to serve you and others with financing needs.

For more helpful resources visit BayAreaHomeBuyersInfo.com!