It's Easy to be a Homeowner(If you want!)

What a statement! Every time you pick up a paper or listen to the radio, you are barraged with how high housing prices are and how the “experts” predict this will continue. Interest rates have climbed to a 20 month high, so how can a first time homebuyer ever expect to save the downpayment needed or have enough income to qualify for the payments?

Here is the short answer: Mortgage lenders believe in California real estate. That belief causes them to offer home loan programs that are specifically tailored to getting people into their first home. These programs range anywhere from a low down (3%) loans to no downpayment loans and the lender will even advance an additional 7% of the purchase price for closing costs! A new homeowner can literally buy a new home with no net cash out of their pocket! I say “net cash” because there will be certain upfront costs that need to be paid by the buyer, but those costs could be reimbursed when the loan closes.

So the downpayment is really not an issue. However, it does hold true that the more downpayment you are able to scrape together the better the interest rate is. Now, on to the income.

What I see most of the time for many first time homebuyers is that they have the income to qualify, but they have too much debt. I have found in many cases, the largest monthly outlay is for car payments, and there are usually 2 cars. Here is an amazing thing: many times if you buy the house before the car, you will still qualify for the car because of the different approval standards. For “stated” (not proven) income, I see lenders offering 100% financing, but for these loans you will need to pay your own closing costs. What this means is you can now combine your normal income that you can prove with the other income that traditional lenders won’t accept. Types of the latter income would be part-time and temporary jobs, contract work you haven’t done for 2 years, capital gains, roommates, etc.

I can go on forever about the programs that are available but my initial point is made: It is easy to become a homeowner, if you want to.

Fixed Interest Rates for Loans under $333,700 as of 4/21/04 (a.m.) are:
(for 0 point loans)
30 year fixed: 6.125% (APR 6.21%) payments are $2,027.60/mo
15 year fixed: 5.625% (APR 5.77%) payments are $2,748.79/mo.

Good Bye Rates

The unemployment number this a.m. was the nail in the coffin for the low mortgage rates that we have been enjoying for the last year. Although I'm convinced that the Fed can't move aggressively in raising short term rates- no matter what the economy does, this doesn't stop Wall Street from selling bonds and driving up long term rates. My opinion (again, if I knew for sure, I'ld be on my yacht in the South Pacific) is that the Federal Reserve is caught between a rock and a hard place. Greenspan said as much yesterday when he said the biggest threat to the economy was the Federal Budget deficit. If the Fed raises interest rates to slow inflation, then the higher borrowing costs will further drive up the deficit, as well as dry up capital for the private sector. More borrowing by the government leaves less money for business.

Nevertheless, the economy is showing robust growth across most sectors and that is bad for bonds. So, goodbye rates.

Currently 30 year fixed mortgage rates for conforming loans are in the mid-6% range for 0 points. Read this month's newsletter for further information.