The ever more stringent lending requirements.

If you are buying a home with a loan, please be aware that the lending rules are getting tougher by the minute. One of the things you need to pay attention to is your funds.

If you plan to buy a home in the next two months, please don't move around your money unless you absolutely have to. And if you do move, please take out x from Bank A and deposit the same x to Bank B. Don't take out x, cash out y dollars, and deposit x-y dollars. Or take out x, add z dollars, and deposit x + y bucks. This will make the lender confused, and you will have plenty of explanation to do. If you have to add or subtract money, do it in another transaction.

Typically lenders need 2 months of bank statements, 2 months of pay stubs, and 2 years of work history/tax return. So have all your paperwork lined up before you enter into a contract will greatly improve the chance of a smooth transaction.

Buying a "corporate owned" property?

When you see a property listed as "corporate owned", most likely you are seeing a "flip" -- a property bought by investor(s), they usually do some work to it and resell it for a profit. FHA loans will not allow you to buy such property within 91 days of last closing. If you are buying it with a conventional loan (which traditionally doesn't have restriction on this), you need to double check with your lender if they will approve the sale.

We have heard recently that if the property is a flip, some lenders will not allow the profit to be over 15% if it's sold within 91 days from previous sale date. We are seeing more and more lenders get onto this bandwagon, and some have increase this 3-month period to 6 months.

So both buyers and investors need to be prepared.

Land Banking

I recently went to a seminar on land banking, and found it rather interesting. The idea of land banking is not to purchase a piece of land and eventually use it personally (although you could). The idea of land banking is to purchase land "in the path of growth" to be a product added to your porfolio to accummulate wealth, very much like stocks and mutual funds.

Land banking essentially is a speculation on the future use of a piece of land, therefore it is another type of long-term investment in real estate. For example, if there are good indicators an area will have good population growth (let it be a football stadium is being built or the California High-Speed Rail is coming to town), the land around the area will see appreciation over time. And flat lands are probably more desirable than hillier sites.

When we talk about investing in real estate, we usually think about purchasing a rental property. But land can be used in other ways too -- farm land, underground water resources, alternative energy production, or as simple as a developer buys it to turn it into a community.

Do you know you can purchase land with IRA or 401(k)? So if you have money in IRA or 401(k), you might want to consider to diversify and purchase a piece of land (or portion of a larger parcel). If you would like to know more about land banking, please don't hestitate to contact me.

Improvement and Overimprovement in Home Remodeling

If you want to recoup some of the money you spend on remodeling your home, you need to consider not to overimprove. Although in the Pacific rim, you will recoup more of your investment than the national average, some investments are still better than others. For example in the midrange homes, minor kitchen remodel recoups about 95% of the money spent, while remodeling a home office will only get you about 65% return. Investing in new vinyl windows is also a good choice, it recovers about 93% of the cost, while helping you save green by living green.

Some of these is somewhat surprising. An addition of new wood deck will get a 97% return, but an extra sunroom is only 60%.

This online list gives you the national average. Contact me if you want the Pacific coast averages.

http://www.realtor.org/rmohome_and_design/articles/2008/0812_costvsvalue_2008

Foreclosure Moratorium

In February the State passed a 90-day Foreclosure Moratorium that went into affect June 15. This law is intended to help those owner-occupied homes where the first loan was recorded between Jan. 1, 2003 and Jan. 1, 2008 from being foreclosed on. The law requires lenders to prove they have tried to modify the delinquent loans before they can begin foreclosing.

Under the law, however, Department of Corporations can grant loan servicers exemptions - allowing them to foreclose - if the lenders have a mortgage modification program in place that meets some combination of various criteria. Among them: a deferral of a portion of the principal, lowered interest rates for at least five years or an extension of loan terms. The exemption can take a month to complete, and during that time the lenders can continue to foreclose homes as usual.

You can read the bill in its entirety here.

Selling Del Mar Fairgrounds?

We all know the State is in financial crisis, and the Governor is thinking about selling some properties to close the budget gap. This reminds me back in the days I worked for City & County of San Francisco, map department was mapping out some little properties we can sell. These are the triangular-corner-space-that's-smaller-than-a-regular-house-lot type properties. I didn't imagine the State would sell off something as huge as Del Mar Fairgrounds or Cow Palace in Daly City.

What are we going to sell next? State Park?!

How to shop for a loan?

Before you go out to find your dream home, you should consult with a lender to see how much of a loan you can comfortably qualify for. It is very disappointing if you find your home and come to realize you can't get it financially.

Common types of loans:

Conventional Loan

Conventional loans are the "normal" loans with certain percent down payment. Usually if the down payment is under 20%, the lender will require Private Mortgage Insurance (PMI). Conventional loans are sometimes more lenient with the appraisal and condition of the property. The best rates are usually given to conforming loans, which are conventional loans under $417,000. Above this limit you are into the Jumbo Loan range.

FHA Loan

FHA loans are insured by the Federal Housing Administration. They offer a low down payment (currently 3.5%) and are easier to qualify for than conventional loans. Property must be comply with Minimum Property Requirements, and would need to be brought up to code if it's not.

VA Loan

VA loans are guaranteed by the Veterans Administration. A veteran must have served 180 days active service. VA loans don't require any down payment, but it can not exceed the CRV (Certificate of Reasonable Value).


So when you are out shopping for your loan, what should you be comparing?

Check to see if the lender is reputable in the community. How long has the company been in business and how many loans do they close each year? Is the lender a direct lender? Many REO or bank owned properties now require pre-approval from direct lenders, not just any mortgage broker. Does the lender have access to different types of loans? Can the interest rates be locked in and for how long?

Don't pick a lender based on rates quoted over the phone. Interest rates can change multiple times a day. They also depends on your credit score and history, loan amount, and the type of properties you are purchasing.

There are a lot of nuances in loan application now, particularly if you are buying a condo unit. You need to be aware of the owner occupancy ratio, the percent of owners in arrears in HOA dues, and whether the condo complex is in litigation, just to name a few. A good article on condo loans from the Wall Street Journal can be found here.

Closing costs.

When you purchase a property, other than the downpayment, you need to prepare for closing costs. Closing costs are all the fees you need to pay to get the loan and close the transaction; they are typically one to three percent of the purchase price, mostly depending on the loan. They include but are not limited to:

• loan origination fee (point)
• appraisal fee
• credit report
• hazard/fire insurance, in some cases, flood insurance
• private mortgage insurance (PMI)
• prorated taxes and assessments
• escrow and title fee
• title insurance
• notary fee
• recording fee (recording to the County Recorder's Office)
• inspections (physical, termite, roof, etc)
• home warranty

In a short sale or bank owned transaction, seller (the bank) typically chooses the escrow and title companies, but they can be negotiated.

Escrow fees can be estimated by: $250 + $1.50 per every $1000 of the purchase price if the purchase price is until $1 million; for over $1 million, it's $250 + $1 per every $1000.

Tax incentives for purchasing a home this year.

If you are a first-time home buyer, you are in a GREAT time to buy. (I don't mean just great, but GRRRREAT.) The reasons are the home price has gone down 30-40% in many areas since 3 years ago, record low interest rates, and now the tax incentives. Although you might have missed the absolute bottom so far (it happened right before or shortly after the stimulus package came out in early March in many areas), you are still in a great position to get your first home. You have been saving all your money (but not putting it in stock market, I hope) these past few years when the home prices were beyond reach, haven't you?

There are two tax incentives this year. The $8,000 refundable tax credit is from the Uncle Sam, and it applies to new and existing homes. You will be qualified for this tax credit if you purchase a home this year until December 1st. The best part of this tax credit is it's refundable, and it applies to your taxes, not income. Say if you owe $3,000 in taxes in 2009, and you purchase a home, you will actually get $5,000 back next tax season.

The $10,000 tax credit is from the State; it applies to only new constructions and is to be credited over 3 years. You have to live in the property for 2 years after you purchase it.

With these tax incentives, there are a lot of activities in the starter homes market. Prepare yourself by getting pre-approved. If you are ready to take on the pride of home ownership, email me or call me at 858.382.1805 to dicuss your needs. I'd be happy to assist you.

What are short sales? How does it work?

Short sales or short pays are transactions in which the banks are selling the properties for less than the owners' loan amounts, ie selling them short. They do not mean the transaction time will be short. In fact short sales typically take a much longer time than normal sales, about 3-6 months before you hear back from the bank. Given that said, the banks are finally getting a little better with these transactions, and we have seen short sales close in 2 months.

If you want to sell your house in a short sale

You should have a genuine hardship such as divorce, job loss or death that would make you unable to pay for your mortgage. You do not short sale simply because your house is now only worth 1/3 of what you paid for 3 years ago. You need to qualify for short sales.

The short sale process doesn't start until you receive an offer from some buyer. After you have an offer, your real estate agent will put together a package to be sent to the bank, explaining why you have no choice but to sell the property. This package typically contains:

• a letter explaining your financial situation and hardship
• last 2 years of tax return
• evidence of unemployment or latest paystubs
• letter authorizing real estate agent to be your negotiator with the bank
• financial statements

Be sure to send in a complete package, because any missing document will slow down the process even further. Negotiation begins when the lender eventually assigns a negotiator to your file.

When the short sale is finally approved, the buyers made the offer 5 months ago might have walked away. In the meantime, you should continue to make payments so your property won't be foreclosed on.

Short sales will hurt your credit for about 12 months, as opposed to a foreclosure which will hurt for 3-4 years. By being hurt I mean you won't be able to get up and buy another property.

If you want to purchase a short sale property

You will submit a normal offer in standard CAR forms, but be prepared that it will take 3-6 months before you hear from the lender, although we have seen it improved recently.

In most cases the lender will not agree to repair requests. You might be able to negotiate to get some credits if the inspections are really bad.

Be prepared to submit your highest and best offer when the short sale is approved, if you are still interested.

If your offer is the lucky one to be accepted by the bank, you might have shorter contingency period to perform (the standard is 17 days, but the bank might only give you 7 or 10). So be sure to act quick to do your inspections and get your loan in place. Although the bank might not do repairs, you should still do inspections so you know what you are buying.

If you are considering buying or selling a property through short sale, please email me or call me at 858.382.1805 for more information. I'd be happy to assist you.

Temporory Property Tax Relief

If you have purchased your home in the past few years, the value of your home might have dropped below your assessed value by the County Assessor. If you think that is the case, you can file for a Temporary Property Tax Relief by filling out this application and providing 3 sales comparables preferrably between 10/01/08 and 03/31/09. For the 2009-10 tax year, you will need to file your tax relief claim by 05/01/09. So you only have a few days to do it!

In the future should your home value rises over your original assessed value, the new assessed value will be the original assessed value before the temporary cut.

If you need help locating sales comparables for your property, you can contact me at justinedlin@yahoo.com. I'd be glad to be of assistance, free of charge.

What market is this?

Depending on who you are talking to, you will get different answers. Some will tell you the market will go down another 10%, while others will tell you it's been bottomed. Today the UT said "Default notices hit record in county", and "Apartment rents fall; vacancies are rising". On the other hand, News 8 reported yesterday that a home in North Park received more than 80 offers.

While agencies like DataQuick are having objective numbers, they might not truly reflect areas of the market. What I see is that some bank owned properties seem to be priced particularly low to attract traffic, and the buyers bid up to market value supported by comparables. The banks want to make sure the properties would be sold. A property in my office was listed for $395,000, although our agent wanted to list it somewhere between $420,000 and $450,000. The agent received an offer in the first day, and eventually received 16 offers, all well over the asking price. I helped hold the open house (wouldn't even need it since the agent had 6 offers in writing before the open house, and 4 were coming), the traffic was non-stop for 3 hours. Some came by after 4 to look at the house, while others came by to look at the house one more time, after submitting their offers.

I can't tell you if this is a good time to buy, because it depends on your personal financial situation more than anything else. Since the stimulus package came out last month, we have seen a lot more people out looking at properties. If your financial sitation is stable, and you are considering, it is a great time to buy, particularly if you are purchasing for the first time.

If you are a first-time buyer, you will get $8,000 or 10% of the purchase price, whichever is less, refundable tax credit from the federal government this year. You have until December 1 to make the purchase. I think that's the reason many buyers are out looking at open houses.

On a side note, if you are considering buying a short-sale property and want to qualify for the tax credit, you need to start your purchase process soon because although short-sales are moving along much faster now, it still typically takes about 3 months to go through the bank approval. Keep that in mind when you are purchasing.