While San Clemente real estate prices have come down from their highs, many individuals are struggling to afford a home due to higher downpayment requirements required by lenders and the recent legislation that is doing away with downpayment assistance programs.  Therefore, at San Clemente Coastal Living, we thought it would be appropriate to address creative ways to afford the San Clemente home or condo of your dreams.  The following are various strategies that we can structure for your purchase:

• In today’s market, many sellers (those who are not in a short-sale or foreclosure) may be willing to provide financing.  Some sellers may be willing to finance all or part of the purchase price and let you repay them gradually as you would with a mortgage.
• Consider doing a shared equity arrangement with friends, family or an outside investor.  Under this scenario, your co-investor will buy a portion of the house and share in appreciation when the house is sold.  This investor will benefit from all the tax write-offs of an investment property for their share of the ownership, which includes being able to depreciate the property.  In the meantime, you will be able to enjoy the write-offs of a primary residence for your share of the property.  Since you will occupy the house, you will pay the mortgage, property tax, and all related maintenance costs.  This can be a win-win situation for both parties.  If family or friends cannot invest, there are companies out there that could potentially provide an investor on your behalf.
• Perhaps your family will loan you money for a downpayment which you can payback as if it were a mortgage or whatever seems fit for both parties.  If you have little credit history, a lender may want a co-signer.  In this case, it may be worth structuring the deal to offer your family the upside of sharing in the long-term appreciation of the home as addressed in the previous point.
• Don’t forget about your 401K as a means for a downpayment if you are buying your first home.  If you are single, you can withdraw $10,000 from your 401K without being taxed for early withdrawal, or $20,000 if married.  Who cares how your 401K is performing as the money going into this account is all pre-tax.  So if your effective tax rate is 30%, then you are saving 30% quicker by using your 401K as a means for your downpayment versus using after tax money in your savings account.
• If there are no other options to come up with the downpayment this year, then consider leasing the property with an option to buy.  This will give you more time to save for your downpayment and test out the house for a year.  In addition,  many owners will apply some of your rent towards a downpayment.  Be sure, however, you would want to buy this home as you may have to pay a small nonrefundable option fee to the owner.
• An option once the real estate market settles and credit becomes more available would be trying to qualify for a short-term second mortgage to assist with a higher downpayment.  This may be possible if you have good income and little other debt.
• The government is currently offering a $7500 tax credit to first-time homebuyers, so you could borrow the money short-term from family or friends and return it once you receive this credit on your tax return.  This credit, however, will have to be repaid to the government as if it were a loan.

For more information on creative ways to afford San Clemente real estate and how to structure your transaction, please contact us! 

An article on CNN Money titled “9 Ways to Tough Out Tough Times” provides a number of ways to protect yourself during times of economic instability like our current situation.  While many of the talking points concern one’s financial portfolio and tips for trading in an unstable stock market, a couple of ideas deal directly with real estate buyers. 

The fifth item discussed in the article concerns raising and maintaining your credit score, one of the most important components analyzed by lenders when deciding whether or not to help finance your new home.  Not only does good credit make a lender feel more comfortable about lending money, but better credit may help you to get a lower interest rate.  The article states that the two most important factors with maintaining good credit are your payment history and account balances.  Paying bills on time should be a no-brainer (and accounts for 35% of your credit score), but keeping your account balances below 50% of your credit limit dramatically improves your overall credit score (this accounts for 30% of the total score).  The article also advises you to not open unnecessary accounts or make too many credit requests, as multiple credit inquiries could ding your score.   Credit history is important because it establishes your payment history, showing any potential lender that you have a good background with regards to paying off debt.  Even if buying a home is not in the foreseeable future, taking these steps now can make obtaining a loan for your first home that much easier.

The seventh talking point in the article concerns finding a great deal on a mortgage, something that is on everyone’s minds these days when thinking about a real estate purchase.  One of the reasons that the housing market is in trouble is due to unscrupulous lenders taking advantage of people with little money and substandard credit by offering them loans that looked good on the surface but turned out to be nightmares when the interest rates adjusted.  In these tough times, banks are much more careful when lending money, and securing a good interest rate might mean putting down at least a 20-25% down payment.  The article states that buyers can find good interest rates without having to deal with mortgage brokers, who may add upwards of 27% to a loan’s fees.  The article suggests going to a site like bankrate.com, where you can put in your desired location and loan amount to discover different lenders in the area and their loan terms.  Once you narrow down the list to a couple of potential lenders, contact each of them and ask for a good-faith estimate (usually free of charge).  The interest rates you receive from each may be in the same ballpark, but pay attention to the additional fees they charge for loan origination, document preparation, etc.  This takes a little work on your part, but it could end up saving you a nice chunk of change in the long run.

For more information on tips to help your purchase of San Clemente real estate become a reality, please do not hesitate to contact us. 

Mortgage rates have fallen below 6% for the first time since this past spring.  The 30 year fixed rate dropped from 6.35% to 5.93% last week making San Clemente real estate more affordable.  For example, a San Clemente home or condo financed at $700,000 based on a 6.35% rate would cost $4,355 per month.  The same amount financed with this past weeks rate of 5.93% would cost $4,165.  This would be a savings of $190 per month or 4.37%.  This would equate to a savings of $2,280 per year or $68,400 over the life of the loan if never refinanced.  The drop in rates is both good news for buyers and sellers.  Buyers can now afford more for their San Clemente real estate purchase and for sellers, this relieves some of the downward pressure on prices.

For more information on financing or San Clemente real estate, please contact us.

On Sunday, the government announced the bailout Fannie Mae and Freddie Mac due to these mortgage giants having serious liquidity issues.  The national housing market was at risk since these two entities back nearly half of all mortgages in the U.S.  But what does this mean for San Clemente real estate and the cost of borrowing?

The Good News: 

The bailout is crucial to turning the corner on falling prices for San Clemente homes and condos for sale.  The availability of mortgage financing and getting approved over the last year has been extremely difficult, meaning fewer individuals were able to buy.  With the bailout, there will be a greater availability of credit as the mortgage giants will be able to continue buying mortgages from lenders, which have been traditionally packaged and sold in the secondary markets.  Interest rates could drop by 1% as investors in the debt of Fannie Mae and Freddie Mac may require lower returns as the risk of losing their money is now fully protected by the government.  This is good news as the higher rates required by investors over the past year have made mortgages more expensive, and therefore, in part explaining why mortgage applications have been down 27% and home prices have fallen.

The Bad News:

With foreclosures and deliquencies at an all-time high, lending standards will remain tight, especially for borrrowers with weaker credit histories.  Down payments up to 20% may still remain on San Clemente real estate and lenders are requiring credit scores of 700.  Borrowers with scores in the 600s may pay an additional 2.25%.   This would mean an extra $1100 per month on $700,000 financed for a San Clemente home or condo.  Once the housing markets show more stability (i.e. fewer foreclosures and deliquencies, inventory clearing and prices stabilizing) down payment requirements should begin to ease and lending standards return to historical norms.  Nevertheless, San Clemente should begin to see an uptick in sales as their are some great deals  to be had, specifically on foreclosures or sellers desperate to move.  Buyers with patience will find these deals with the assistance of a specialist.

For more information about San Clemente real estate and what the bailout means, please contact one of our specialized San Clemente real estate agents.

For the first in this series on Financing 101, San Clemente Coastal Living thought it would be appropriate to address how important your credit score is to getting approved on the the purchase of a San Clemente home or condo for sale.  The first thing as a buyer you need to take a look at is your financial profile, or in other words, your credit score.  Credit scores range from 300-850 and borrowers with a score of 700 or above are typically considered prime borrowers.  So lets break down how your credit score is calculated and how you can improve it.

First, 30% of your credit score is based on what’s known as your credit utilization ratio.  This is how big your balances are compared to how much credit is available to you.  It’s recommended you leave 50% of your available credit open in order to not ding your credit score.  Therefore, one of the fastest ways to improve your credit score is to pay those balances down.

Another 30% of your credit score is based on your payment history, and therefore, paying on-time is critical.  Late payments will stay on your records for as long as seven years, however, your credit score will begin to improve after six months of on-time payments.   After one year of on-time payments, you should see a huge leap in your credit score.

10% of your credit score is based on how many times you apply for new credit, and therefore, opening new credit lines before you want to refinance or take out a mortgage could prevent this from happening.

 The rest of your credit score is based on length of credit history among other factors.  One thing to keep in mind, however, is to review your credit report annually for errors as a recent study found that over 75% of credit reports contained some sort of error.  Having an error on your report could prevent you from buying the San Clemente home of your dreams.  With this being said, you are entitled to a free credit report every 12 months and can obtain it off FreeCreditReport.com.  If you happen to find errors, then you can respond to the credit bureau as they have 45 days to investigate the claim once found.  You will also want to contact the creditor who reported the error.

For more information about financing or San Clemente real estate, please feel free to contact us as we will be happy to provide you a free consultation.