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Q: In this current buyers market, is it a good time to buy a home?
A: Buying a home compared to renting a home is always recommended whether it is a buyer's market or a seller's market. There are many advantages in owning your own home. First and foremost are the tax deductions from mortgage interests. Also, monthly rental costs for single-family homes and multi-bedroom apartments are almost as high as monthly mortgage payments thus affordability is not that far off. Furthermore, home values have dropped dramatically. Those people that were out-priced during the housing boom years now can buy the home they previously could not afford. In addition, sellers are now more willing to negotiate. A good real estate agent can negotiate closing costs to be paid by the sellers [up to 3% of the purchase price]. Interest rates have remained very low. However, some caveats in buying now are, lenders are more stringent in the qualifications, 100% percent loans are only available with full qualifications, high FICO scores, and only available on conforming loans. At some point 100% loans will probably disappear. Minimum down payment requirements would probably be 5% the purchase price. The mortgage scenario is in flux and the high loan to value (LTV) loan may not be available later. The best course of action for those people contemplating on buying a home at this time is to meet with a loan officer to discuss budgeting to see if buying a home is a practical step for them. It is more important to understand budgeting when qualifying for a home-loan to prevent the possibility of future default than just getting pre-qualified without understanding their budget.

Q: I have bad credit, is it possible for me to buy a home?
A: Yes, the first thing one must do is to define their bad credit. Meet with a loan officer, take a look at your tri-merged credit record (this is a record of all three bureaus; Experian, Trans-Union & Equifax) with FICO scores and get counseling on how to improve your credit scores. The implementation of FICO scoring made it easier for those that have poor credit to improve them within a specific time period. Bad credit is never permanent, it can be improved.

Q: What is FICO score and how can I take advantage of it?
A: FICO scoring is the generic term adopted to define the risk scoring systems of the 3 major credit bureaus. [Experian = Fair Isaacs, Trans-Union = Empirica, Equifax = Beacon]. FICO systems were created to predict the risk of an individual defaulting on their credit. The scores range from a high of 900 to as low as 400. FICO scores consistently change as creditors report credit activity on each Social Security number. It is possible that somebody will not have a score such as someone without any credit record as of yet. In that regard one must apply for credit to initiate their credit rating. Higher scores mean the less risky the borrower. Scores above 700 usually dictates better interest rates. It is possible to improve ones credit score. To understand how one can take advantage of credit scores and how to improve them if necessary, call and meet with one of our credit counselors.

Q: I got pre-qualified for a home loan and I was told my Debt Ratio was too high? How is Debt Ratio calculated and what is the required debt ratio?
A: Debt ratio is the ratio between the total monthly debt-payment versus the gross monthly income of an individual. The commonly used ratio based on Fannie Mae/ Freddie Mac standards is 38%. An individual/couple must not exceed 38% of their gross monthly income towards payment for debts. However, this ratio is not written in stone. Lenders will allow borrowers to exceed that ratio with some compensating factors such as high FICO scores, Reserves, equity, etc. When getting pre-qualified it is important to understand what amount of loan an individual/couple can qualify for. High ratio means that the loan one is applying for is not within the confines of their capacity to pay. They can reduce the loan they are applying for and/or reduce credit balances to reduce their debt ratio. The 38% ratios take into account typical expenses such as utility bills, cost of living expenses, etc. that are not quantifiable and defined.

Q: When purchasing a home is it necessary to purchase a home warranty?
A: No, but it is extremely recommended. Even with a property inspection, it is very difficult to assess the integrity of the home purchased whether the home is a new construction or resell. A home warranty covers unexpected cost of repairs when something breaks such as water heaters, air conditioning systems, plumbing, etc. on a recently purchased home. Home warranties do have limitations on their coverage so consumers must be aware of those limitations. Coverage is defined via the home warrantor's pamphlets. Additional coverage for things such as pools, roof, spa, etc. can be added for additional cost and coverage can be extended beyond their 1 year minimum warranty by the current homeowner. Most home warranties do carry initial inspection costs when homeowners request repairs. Costs vary, check with insurer. It is common for Sellers to pay for the standard home warranty when a real estate agent requests for it. But it must be requested. It is not automatically given within the purchase agreement.

Q: Is real estate a good investment right now considering real estate values are dropping?
A: Yes, real estate is still the best investment tool. Real-estate investments should be seen as a long-term investment. Investing in real estate must be carefully analyzed. If buying a home or multi-unit property, the net monthly income must at a minimum be able to cover the total monthly PITI (Principal & Interest, Taxes, and Insurances). Otherwise the investor will have negative income. However, if it is a negative income, consider also the upside, the annual cost or income after tax deductions. Confer with a CPA and a real-estate professional to calculate income projections regarding specific properties. Investment properties do have certain allowable tax and expense benefits that taken on an annual basis can justify the monthly negative income.

Furthermore, if one is considering investment properties, now is a perfect time to buy since values have dropped and prices are negotiable. The best time to buy and invest is during the down market and current real estate economy is definitely at that level.

Q: Are foreclosed properties a good deal?
A: This answer is not a clear yes or no. It depends. Remember, the lenders on all foreclosed properties have already lost money on these properties. They are trying to dispose of these properties before losing more money. Every day that the property is not sold costs them money. However, they will not necessarily hand out those properties at bargain prices. They will only sell it at almost comparable values within the area to recoup as much of their loses as much as possible. Lenders work with local Real-estate agents to price and market those properties. Therefore, to say that foreclosed properties are good deals may or may not be true. Due diligence in researching property valuations, via comparables and property inspection, must be done. Keep in mind that often, owners of foreclosed properties never leave those properties in good condition. In most cases they will strip the property of all improvements they have done whenever possible. Thus, be ready to do some repairs when buying foreclosed properties. At this time many lenders may not spend more money to repair these homes considering they are already at a loss. Work with a local real estate professional for valuations and comparables. When investing in real-estate properties always follow the 3 rules. Location, location, location.

Q: I hear from a friend that I should not get an adjustable rate loan and or interest only loans. How true is that advice?
A: Considering what has and is happening right now, the answer to that is yes. But, let's consider high real-estate value areas like California, New York, New Jersey etc., without adjustable, interest only loans, the affordability factor will be so low that it would be very difficult for the ordinary worker to afford a home. Let's take Los Angeles county properties as an example with the median Price of $500,000. Let's use an interest rate of 6.25% 30 fixed rate amortizing loan. With a minimum down payment of 5%, the borrower will have a loan of $475,000. The amortizing monthly payment is $3,080 as compared to an interest only payment that has a 5 year fixed rate provision with a rate of 6.5% giving a monthly payment of $2,671.88. A $408 dollar variance makes a huge difference in terms of affordability and qualifications. Thus, in high property value states, does it make sense to take an adjustable interest only loan? The answer would be reliant to the specific need of that specific consumer. The best decision regarding whether to get an adjustable interest only loan would ultimately be left to the consumer. The consumer must understand all the provisions of that specific loan and work closely with a mortgage counselor regarding budgeting and worse case scenarios before accepting that adjustable loan. In addition, the consumer must also project how long they plan to stay in that home. If they see themselves upgrading within a five year timeframe, it may be to their benefit to take advantage of these programs. Thus, a single or a young couple starting out with their first home might take advantage of these loans since the chances of them upgrading within a few years are high. Other considerations must be looked at when deciding whether it is advantageous to accept an adjustable interest only loan. As we can see, the answer to this question seems simple but not necessarily since there is a need for such loans. The emphasis on budgeting and projecting for the future is very important.