The Federal Housing Finance Agency has permanently increased the conforming loan limit rate in San Diego County to $546,250. This is a change from the limit of $697,500 set temporarily this year as part of a government stimulus package aimed at slowing the real estate decline.
A conforming loan has a lower rate than a non-conforming loan since it is guaranteed by the government-backed Fannie Mae and Freddie Mac. Any loan above this limit is considered jumbo, which has a higher interest rate due to the additional risk of not being a guaranteed loan.
Market impacts
The new conforming loan limit will have an impact on the affordability of Carlsbad's costlier homes. Homebuyers needing a loan for more than $546,250 will need to put more money down to avoid the 1 percent or more cost of a jumbo loan.
This may limit a small percentage of buyers that have high incomes, but are without a large amount in savings. It does not help Carlsbad's million dollar luxury market, a sector that has seen much slowdown since the peak of 2005.
During the second half of 2007, the average price of a 2,600-square-foot, four bedroom home in south coastal Carlsbad (92011) was $910,000. This year, the average sale price of a similar home is $835,000.
Strategies in the new market
Whether you're buying or selling in today's real estate market, you need to know what a buy-down is. A buy-down is an upfront payment on a mortgage loan that lowers the interest rate of the loan.
The two types of buy-downs are temporary and permanent. A temporary buy-down will lower the borrower's payments for a set time, usually the first few years.
The permanent buy-down should be your focus. Today's buyers want an ever better deal on real estate and pressure sellers to further reduce their asking price.
A buy-down can create affordability at a reduced cost. For example, for about $18,000, a seller can permanently buy-down the interest rate of a $450,000, 30-year loan a full percentage point, shaving $289 a month off of the buyer's mortgage payment. (Assuming a 10 percent down payment on a $500,000 home, with a 6.5 percent interest rate before buy-down.)
By agreeing to pay lenders upfront, sellers can provide the buyer with a value equivalent to a much larger reduction in asking price. The home would have to be reduced $45,800 to achieve the same change in monthly payment as an $18,000 buy-down.
This strategy to combat competing foreclosure property is discounted much below your asking price. Consult a professional on details to see if a buy-down could help you.
Foreclosures and short-sales
Currently, the hottest sector of the real estate market is foreclosures and short-sales. Both types of property are priced below market and allow homebuyers to score huge discounts on local property.
But buying foreclosure and short-sale homes is not without its challenges. Buyers should be aware that a foreclosure does not come with seller disclosure.
As the lender has never occupied the property, it does not know about the cracked slab, leaky pipes or faulty construction. The buyer is taking the home as-is.
Buyers also are finding themselves in a bidding war with other investors. Local foreclosure brokers have come to expect three or more offers on their bank-owned property.
The one benefit a short-sale property has over the foreclosure is that the buyer still receives full disclosure from the seller. But the positives end there.
Buying a short-sale is arduous. It can take four or more months to receive bank approval. Throughout this time, although your offer is accepted by the seller, it is subject to lender approval and overbid.
Overbid means that while you wait for lender approval, a competing buyer can take your good deal from you by submitting a slightly higher offer. However, those coolheaded buyers willing to wait have scored excellent prices on their new homes.
A conforming loan has a lower rate than a non-conforming loan since it is guaranteed by the government-backed Fannie Mae and Freddie Mac. Any loan above this limit is considered jumbo, which has a higher interest rate due to the additional risk of not being a guaranteed loan.
Market impacts
The new conforming loan limit will have an impact on the affordability of Carlsbad's costlier homes. Homebuyers needing a loan for more than $546,250 will need to put more money down to avoid the 1 percent or more cost of a jumbo loan.
This may limit a small percentage of buyers that have high incomes, but are without a large amount in savings. It does not help Carlsbad's million dollar luxury market, a sector that has seen much slowdown since the peak of 2005.
During the second half of 2007, the average price of a 2,600-square-foot, four bedroom home in south coastal Carlsbad (92011) was $910,000. This year, the average sale price of a similar home is $835,000.
Strategies in the new market
Whether you're buying or selling in today's real estate market, you need to know what a buy-down is. A buy-down is an upfront payment on a mortgage loan that lowers the interest rate of the loan.
The two types of buy-downs are temporary and permanent. A temporary buy-down will lower the borrower's payments for a set time, usually the first few years.
The permanent buy-down should be your focus. Today's buyers want an ever better deal on real estate and pressure sellers to further reduce their asking price.
A buy-down can create affordability at a reduced cost. For example, for about $18,000, a seller can permanently buy-down the interest rate of a $450,000, 30-year loan a full percentage point, shaving $289 a month off of the buyer's mortgage payment. (Assuming a 10 percent down payment on a $500,000 home, with a 6.5 percent interest rate before buy-down.)
By agreeing to pay lenders upfront, sellers can provide the buyer with a value equivalent to a much larger reduction in asking price. The home would have to be reduced $45,800 to achieve the same change in monthly payment as an $18,000 buy-down.
This strategy to combat competing foreclosure property is discounted much below your asking price. Consult a professional on details to see if a buy-down could help you.
Foreclosures and short-sales
Currently, the hottest sector of the real estate market is foreclosures and short-sales. Both types of property are priced below market and allow homebuyers to score huge discounts on local property.
But buying foreclosure and short-sale homes is not without its challenges. Buyers should be aware that a foreclosure does not come with seller disclosure.
As the lender has never occupied the property, it does not know about the cracked slab, leaky pipes or faulty construction. The buyer is taking the home as-is.
Buyers also are finding themselves in a bidding war with other investors. Local foreclosure brokers have come to expect three or more offers on their bank-owned property.
The one benefit a short-sale property has over the foreclosure is that the buyer still receives full disclosure from the seller. But the positives end there.
Buying a short-sale is arduous. It can take four or more months to receive bank approval. Throughout this time, although your offer is accepted by the seller, it is subject to lender approval and overbid.
Overbid means that while you wait for lender approval, a competing buyer can take your good deal from you by submitting a slightly higher offer. However, those coolheaded buyers willing to wait have scored excellent prices on their new homes.