by Houtan Hormozian | Oct 18, 2024 | CRESTICO
Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits. To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive. Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.
Under the federal law slated to soon expire, a first-time homebuyer may receive up to $8,000 in tax credits, and a long-time resident may receive up to $6,500, for certain purchase contracts entered into by April 30, 2010 that close escrow by June 30, 2010. Additionally, under a newly enacted California law, a homebuyer may receive up to $10,000 in tax credits as a first-time homebuyer or buyer of a property that has never been occupied. The new California law applies to certain purchases that close escrow on or after May 1, 2010 (see Cal. Rev. & Tax Code section 17059.1(a)(4)). California law generally allows buyers of never-occupied properties to reserve their credits before closing escrow, but buyers seeking to combine the federal and state tax credits will not be able to satisfy the timing requirements for such reservations (see Cal. Rev. & Tax Code section 17059.1(c)(1)(A)). Other terms and restrictions apply to both tax credits.
by Houtan Hormozian | Oct 18, 2024 | CRESTICO
Some people may say yes!
Upward sloping yield curve. It’s important to understand that due to the time value of money and inflation, the longer you borrow the higher your interest rate. If you borrow money from me today to pay me back tomorrow, I won’t charge you interest. But, if you want to borrow money from me today, to pay back over the next 30 years, you better hell believe I’m going to charge you an interest rate above inflation to counteract inflation, make some money, and bake in some risk of default.
Average length of stay. First of all, the average duration one lives in and owns a home is 7 years. If that’s the case, what on earth are you doing borrowing a 30-year fixed rate mortgage for? A 23 year + overestimation of ownership is a serious miscalculation based on the statistics at hand. With a 5/1 ARM, your underestimation is only 2 years, but you already have baked that in.
Match fixed rate with length of stay. If you plan to live in your house for 10 years, take out a 10 year fixed rate (amortizing over 30 years) as the most conservative loan duration. A 10 year fixed rate is cheaper than a 20 year or 30 year fixed rate. It is only logical that you match your mortgage fixed rate with your expected duration of stay. Sure, you might stay longer, but you might also stay shorter as well. If you know you plan to stay in your house forever, it’s more justifiable to take out a 30-year fixed, but I still wouldn’t because 1) You will likely pay down your loan faster than 30 years, and 2) The spreads are unjustly high in this environment.
Adjustable rate loans have an interest rate cap. People think, thanks to fear mongering by the media and mortgage officers, that once the adjustable rate loan period is over, your mortgage rate will skyrocket and make things super unaffordable. This is not the case because everything is relative and rates are capped. I’m Refinancing to a 5/1 ARM at 2.625% with all fees included, and after 5 years, the interest rate can reset one time to a maximum of 7.25%. Whoopdee doo! After 5 years, if I don’t pay any extra principal, my principal mortgage amount is about 10% less. A 7.25% mortgage rate on a 10% lower principal amount is very digest-able.
If rates rocket higher, you will be celebrating. Things don’t happen in a vacuum. The 10-year yield is a reflection of inflation expectations. If the 10-year yield, and therefore mortgage rates are skyrocketing, that means inflation expectations are at the very least skyrocketing. However, you don’t have inflation expectations going higher unless demand for real goods and services going higher. Higher demand is a reflection of a stronger economy, and your real assets (property), by very definition or inflating! So what if inflation rises from 2% to 5%, causing your mortgage to reset to 7% due to the 2% spread? If your home is now inflating by 5%, and you have a 80% loan-to-value ratio, your cash on cash return is going up by 25%!
0 years in a row of deflation. Look at the historical 10-year treasury yield. Rates have gone down for 30 years in a row. That’s right folks. THIRTY YEARS! Are you telling me there’s no trend here? Are you saying that we are going to see massive inflation spikes on the way (which are fine as I just wrote) all of a sudden? In these 30 years, we’ve become a much more efficient society who enacts monetary and fiscal policy in anticipation or with shorter lead times. Yes, there will be occasional upward blips in pricing, but I highly doubt there will be a 5-10 year continuous ramp in inflation, which means your 5-10 year ARM is just fine.
by Houtan Hormozian | Oct 18, 2024 | CRESTICO
In past decades, many people have been trained to think that a 30-year fixed-rate mortgage is the only way to go when it comes to getting a mortgage. They look negatively on adjustable rate mortgages because they fear the adjustable part. But there are advantages to having an ARM and times where a long-term fixed-rate mortgage doesn’t really make as much sense.
Lower Rates and Payments
An ARM, or adjustable rate mortgage, is similar to a 30-year fixed-rate mortgage in that it is also amortized over a 30-year period. But it’s usually for shorter-term situations and generally carries a lower interest rate than fixed-rate mortgages. So if you’re trying to keep your interest rate and payment low, an adjustable can be a sensible choice. And since it’s a short-term mortgage, it’s useful to have a lower rate and payment if you know you’re only going to be in your home for less than 10 years–especially when most American families generally move within nine years or less.
Some adjustable rate mortgages give you even more financial flexibility if they are available with interest-only payments. During the interest-only period, you decide if you want to pay interest plus principal or just interest alone. The rest of your money can go elsewhere, say, toward other bills or just extra spending money.
A Closer Look at ARMs
Many people tend to shy away from ARMs for the fact that the rate is adjustable. However, there are a few caveats to this:
- While ARMs do have an adjustable rate, the rate is fixed for six months, one, three, five, seven, and sometimes even nine years, depending on which term you choose. The rate doesn’t begin to adjust until after the fixed-rate period.
- Although the rate can adjust up, don’t forget that it can also adjust down as well.
- Most people who have an adjustable rate mortgage usually refinance it when it’s time for the rate to adjust. That way, they have some control over their interest rate.
Caps and ARMs
If you have an adjustable rate mortgage and can’t or don’t want to refinance when it’s time for the rate to adjust, it’s important to understand what happens to the rate after the fixed-rate period.
When the rate on an ARM adjusts, there are limitations on how much it can increase or decrease. These limitations, called “caps” include the “initial cap”, the “periodic cap”, and the “lifetime cap”. The initial cap is the limit on how much the rate can adjust the first time it adjusts. The periodic cap is the limit on how much the rate can adjust after the first adjustment. The lifetime cap is the limit on how much the rate can adjust over the life of the loan. Different ARMs carry different caps, depending on the program.
Let’s say your ARM has caps of 5/2/5. The first five is the initial cap; the second number is the periodic cap; and the third number is the lifetime cap. If your rate is 6.5 percent, then the initial cap says the first adjustment is your rate plus or minus five percent–so it can go as high 11.5 percent or as low as 1.5 percent (though it’s pretty unlikely that rates would change that significantly). The periodic cap says the second and subsequent adjustments are your rate (6.5 percent) plus or minus two percent–so no higher than 8.5 percent and no lower than 4.5 percent. The lifetime cap says the rate can never go higher or lower than your rate (6.5 percent) plus or minus five percent.
There are times when you’d want to refinance and times when you don’t. So why would you not refinance your ARM when it’s going to adjust? Well, as we said, rates can go down as well as up. There are some people who are not afraid of risk and are willing to gamble that their rate could go down. To be somewhat savvy, it’s wise to follow what’s happening in the market to know whether short-term rates will go up or down. The Federal Reserve is usually the entity that affects short-term adjustable rates. They meet eight times a year and decide whether to increase, decrease or maintain short-term rates as a control measure over inflation.
Deciding whether you should get an ARM and/or whether to refinance it is really your own decision. But if you can answer a few questions–whether or not you want a lower rate and payment; whether or not you’re only going to be in your home for less than 10 years, and whether you can stand a little risk in terms of the interest rate–then, you’ll be closer to making the right decision. Either way, you should confer with an experienced mortgage expert to be sure you’re making the right decision.
by Houtan Hormozian | Oct 18, 2024 | CRESTICO
Fannie Mae is beginning to implement some changes to its policies regarding distressed homeowners. The institution is now moving towards helping currently distressed homeowners maintain their ability to own a home, by giving them second chances. Intended to support the housing market and incentivize homeowner cooperation with lenders, Fannie Mae will now offer homeowners who grant a “deed-in-lieu of foreclosure” a shorter waiting period before they will be able to qualify for a new Fannie Mae mortgage.
Historically, this waiting period has been at least four years, which is to say that if you, as a Fannie Mae borrower lost your home to foreclosure, you would not be eligibly for another Fannie Mae mortgage for at least four years from the date of foreclosure. Now, however, this waiting period is being reduced by half.
With the new two-year waiting period, homeowners will be required to put at least twenty percent of the purchase price as a down payment, however. This new policy will begin to take effect on July 1 of this year. Fannie Mae is hoping that offering such incentives to these homeowners will be helpful to the country’s recovery as well as setting forth a policy that homeowners who work with lenders are less risky to deal with and better than homeowners who simply abandon their mortgage obligations or fight the lenders for short sales.
Fannie Mae’s policy may be, in part, a reaction to Obama’s HAFA program which is aimed at homeowners who do not qualify for modifications and other foreclosure alternatives. Industry expert are predicting a dramatic increase in “pre-foreclosure” activities this year and next year, which Fannie Mae is hoping to alleviate through its new policy.
Mitra Karimi
Crestico, Inc.
by Houtan Hormozian | Oct 18, 2024 | CRESTICO, In The Press
Bad mortgage advice could cost you tons of money and time.
Are you thinking about buying or Refinancing a home in the near future? If so, chances are you’re getting all kinds of advice from well-intentioned friends and family.
Just remember to keep this important piece of advice in mind: Don’t listen to everything you hear. According to industry professionals, some words of wisdom are not wise at all.
To help you separate the bad advice from the good, check out five common statements that should cause you to cover your ears immediately.
Bad Advice No. 1: “A 30-year fixed-rate mortgage is best for everyone.”
The common perception is that a 30-year fixed-rate mortgage is always the best option, because it typically offers lower monthly payments than other shorter-term mortgages. But the kicker is that interest payments over the course of the loan can be quite substantial when compared to mortgages with shorter terms and Lower Interest Rates.
Consider this example based on rates from Freddie Mac, as of March 20, 2014:
A 30-year loan on a $200,000 property with a 4.32 percent interest rate has a monthly payment of $992 and interest payments totaling $157,153 over the life of the loan. On the other hand, a 15-year loan for the same property with a 3.32 percent rate has monthly payments of $1,412 and yields $54,187 in total interest paid. So by opting for the shorter mortgage, you could save more than $100,000 in interest, which is worth it if you can meet those higher monthly payments.
Whether or not a 30-year fixed mortgage is the right choice depends on the borrower’s goals and financial situation, says Houtan Hormozian, vice president of funding'>Crestico Funding, a Los Angeles-based mortgage brokerage firm.
For example, if you have cash saved up for job, family, or medical emergencies and you already have college and retirement funds set up, then a 15-year mortgage might be a better option. Without money saved up, losing a job or an expensive surgery could deal a hard blow to someone’s finances, including their ability to make mortgage payments.
Bad Advice No. 2: “Stay away from adjustable-rate mortgages.”
An adjustable-rate mortgage (ARM) is a loan with an interest rate that is fixed for a period of time then adjusts, causing the ARM payments to increase or decrease.
ARMs get a bad rap, because they’re seen as risky products that contributed to the housing bubble, easy credit, and ultimately, the subprime mortgage crisis.
“The 30-year fixed-rate mortgage is the most popular type, because everyone is afraid of adjustable [rates],” Hormozian says.
In fact, only 3 percent of homebuyers chose adjustable-rate mortgages in the first half of 2013, reports Freddie Mac. With that low figure it’s easy to get scared off, too. But the fear associated with ARMs is somewhat unjustified, according to Hormozian.
“Depending on the consumer, circumstances, and knowledge of their economic situation, there could be an ARM that fits them,” says Frank Percival, board president of the Washington Association of Mortgage Professionals.
One major benefit of an ARM is that it typically will have a lower interest rate than fixed-rate mortgages at the outset. For example, a 5/1 ARM will have an initial fixed rate for the first five years then adjusts afterward.
This is a great option for homeowners who plan on moving out of their house before the rate adjusts. However, this does carry some risk, since personal finances and the condition of the housing market may make moving difficult in a set amount of time.
So choosing an ARM may come down to your financial situation and your aversion to risk. Percival explains that if a homebuyer with a 5/1 ARM saves $200 a month in interest compared to a 30-year fixed mortgage, it may make sense to choose that type of loan. However, if someone wants to err on the side of caution, given the risks discussed, a 30-year fixed mortgage might be the more sensible choice.
Bad Advice No. 3: “If your home is underwater, consider a short sale.”
“When the housing market was bad a year or a year and a half ago and the values of homes were low, people were encouraged from realtors [and] buddies at work to walk away from their home,” says Percival. He calls this “one of the worst pieces of advice in recent history.”
If desperate homeowners took that advice, they would usually do a short sale on their home. What exactly is that? It’s a Real Estate transaction in which a lender agrees to let the borrower sell his or her property for less than – or “short” of – what is owed on the mortgage.
Even if your home is underwater, it’s a bad idea, asserts Percival. If homeowners can still afford to make their mortgage payments, then they shouldn’t do a short sale.
“People who didn’t have medical emergencies or lose their jobs were dropping their keys and leaving their homes,” Percival says. This is a dumb choice, he adds, since it’s possible that their home value could go have gone up.
Plus, if you do a short sale, you may have to wait several years to qualify for a home again, says Percival. The reason? Because a short sale usually lowers your credit score just as a foreclosure would, according to myFICO, the consumer division of FICO. Shortsellers may be able to qualify for a mortgage in as little as two years, but this may depend on a variety of factors, like how much you are able to put down.
Beyond your own finances, short sales have a far-reaching effect, according to Percival.
“Every short sale or foreclosure reduces the value of every home in the neighborhood,” he says. “If folks would have waited for the recovery to kick in and housing prices to go up, they could have sold it at a profit. People just wanted to walk away from debt.”
Bad Advice No. 4: “An FHA loan is your only option.”
First-time homebuyers are particularly susceptible to bad advice. For example, homeowners who can’t afford a large down payment may hear that a government-backed FHA loan is their only option, since the down payment requirement can be as low as 3.5 percent of a house’s purchase price. But that’s not necessarily the case.
Some homeowners might be surprised that getting a conventional loan might be better suited – and easier – for them than an FHA loan, says Aaron Vantrojen, president of the Arizona Association of Mortgage Professionals, says.
The standards to qualify for an FHA loan have tightened, says Vantrojen. Plus, the FHA loan has become more expensive in recent years due to its rising mortgage insurance premium (MIP).
According to the U.S. Department of Housing and Urban Development, the mortgage insurance on an FHA loan must be carried for the life of the loan. On the other hand, the private mortgage insurance (PMI) on conventional Home Loans can be dropped when equity in the home reaches 20 percent, Vantrojen says.
As a result of dropping the insurance premium, homeowners can save thousands of dollars in the long run. “The annual mortgage insurance for FHA loans is so high, we are trying to get people into conventional loans if they qualify,” Vantrojen says.
The biggest advantage FHA loans have over conventional loans is the low down payment requirement. But conventional loans, with a 5 percent down-payment required, might be a better deal when you factor in the mortgage insurance payments, says Vantrojen.
“I will always look at options for conventional loans [for homebuyers],” says Vantrojen, president of Geneva Financial, a mortgage banking firm based in Tempe, Arizona. “The guidelines for conventional loans are changing, and a person who couldn’t qualify for one a month ago might be able to qualify now.”
Bad Advice No. 5: “Trust me, I know what I’m talking about.”
If you’re in the market for purchasing a home loan and in need of a little guidance, you might want to think twice about listening to someone who tells you: “Trust me, I know what I’m talking about.”
“One of the most common mistakes is not getting advice from a mortgage investment advisor,” says Hormozian. “Any time you don’t seek advice from a professional, you could be in trouble.”
But not all mortgage professionals are created equal, which is why Hormozian says homebuyers should make an effort to consult and get the opinions of established mortgage advisors, licensed mortgage companies, and reputable professionals when they are ready to purchase a loan.
“At the end of the day, my job is to make sure my client will have a comfortable life and a sound investment,” Hormozian says. “If I feel they are going to have a hard time making a payment or living up to that liability, I have to advise against it.”
For example, if someone tells you it’s a great idea to buy investment property as a source of instant income, you better consider the source. Instead of talking to real estate agents, homebuyers should talk to unbiased resources, who could help them avoid potential mortgage heartaches, says Vantrojen.
“Do your due diligence, talk to industry professionals – people who have been real estate investors and [who] can tell you the highs and lows of owning real estate,” he explains.
If owning a new home for you and your family is a main objective, Percival says it might be a good idea to check whether you are dealing with licensed mortgage professionals. He suggests verifying mortgage loan originators (MLOs) and their MLO license numbers through the National Mortgage Licensing System (NMLS), which performs this service for free.
https://homes.yahoo.com/news/the-worst-mortgage-advice-002419375.html
by Houtan Hormozian | Oct 18, 2024 | CRESTICO
Lately, many of my colleagues and friends have been asking me whether I think buying Real Estate is still a good investment. While it may seem like renting a property that is easier to get out of, costs less to maintain and is more easily negotiable to get into is a better choice than dealing with selling agents, competitive cash offers from investors and escrows and taxes; I firmly believe that it is NOT. You may think, “Sure, of course SHE doesn’t want us to rent, she wants us to buy – that’s how she makes money” so keep reading and decide for yourself.
First we need to define what is considered a “good” investment. There used to be a time when people would see huge returns on their investments, be they in stock, bonds or real estate. In a recession however, all kinds of earnings and returns are diminished. This leaves investors to re-define their idea of a “good” investment. Sometimes, they may consider an investment that does not lose value as a “good” investment, other times nothing less than doubled value would be considered “good.” Generally speaking, according to most economic theorists and financial advisors, any investment that is yielding a 5-8% annual return is considered a “good” return. This leads us to a discussion of ROI.
Often you will find people talking about ROI. Historically, ROI (Return On Investment) has been a common method for individuals and companies to measure how “good” of an investment they have made, based on the rate of return that they have enjoyed. When trying to determine whether a particular real estate purchase is a good one – one would need to consider a few things. Real estate’s value depends mainly on its location. (I know you’re heard it “location, location, location”) Often, communities that are built to support big educational institutions or employers (think big name colleges and the neighborhoods close to them, or big factories and suburbs created to house the families of the workers) tend to enjoy more stability in terms of price and rate of return than others, even in times of depression and recession. By looking at the location of the real estate, you will have more information about whether or not it is a good investment. Surveying historical values over time in the area will allow you to see the retention of prices in the area.
Ultimately, as an investor you will need to gather information not only about the property you are considering purchasing, but also the surrounding neighborhood, historical values and proximity of institutions that can contribute to the stability in price. Overall, investing in a home, even at this time in our economy can yield the same (if not better) return as investing in stocks or other types of investments. The key difference would be that you can live in, build a home in, create a family in and achieve your dreams in a piece of real estate whereas a stock certificate can not provide these intrinsically satisfying things for you.
Mitra Karimi
Realtor – Broker
Crestico Realty
www.CresticoRealty.com
