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.