Renting vs buying in todays market
A question I get asked quite often is “Should we continue to rent or is it beneficial to buy right now?” Well, it depends on the numbers! Back when interest rates and home prices were still sky high, renting is a great temporary solution for persons who want a place of their own. However, things have changed significantly since so let’s analyze the numbers:
As an example, in Santa Ana, a 3 bed 2 bath 1500 SF SFR will rent for about $2,000/mo or more. The same 3 bed 2 bath 1500 SF SFR can be had for $275,000 to $325,000. Let’s see what the numbers look like as far as out of pocket costs and monthly payments:
| Rental ($2000/mo) | |
| Deposit (out of pocket) |
$4,000.00 |
| Monthly Lease Payment |
$2,000.00 |
| Purchase ($325,000) | |
| Down Payment (out of pocket) |
$11,375.00 |
| Principle & Interest Payments @ 3.875% |
$1,500.59 |
| Estimated Tax and Insurance |
325.00 |
| Estimated Mortgage Insurance |
332.41 |
| Estimated Monthly Housing Expense |
$2,158.00 |
Most people at this point may realize that for just a little more every month, they can experience the freedom and joy of homeownership. However, there will still be some that may say “well that’s still $158 more than renting!” Yes! That’s true but we’re forgetting that the homeowner may now qualify for an annual income deduction of around $11,000 on their tax returns for the interest paid on their mortgage, one of the many benefits of owning a home. That’s about $2,400 a year or $200 a month in savings for most folks. Mind you that we are Realtors and not CPA’s by any means, so you will need to advise your prospective buyers to consult with a CPA regarding tax related questions. However, the benefit of owning vs. buying is quite clear given the unique circumstances today where both prices and interest rates are incredibly low. Some of our thirty year products today are as low as 3.375%!
Renters need a decent credit to lease a place. If their credit is good enough for leasing, chances are, it’s probably good enough for a purchase. Can you name a few renters within your sphere of influence who may need your help?
I will be glad to answer any questions or comments you may have. Please feel free to shoot me an email at [email protected]. Stay tuned for my cash-flow analysis of investment opportunities today!
Tri Doan
New Summit Realty listing 9024 20th Ave NE, Seattle 98115
Mortgage Rates Make New All-Time Lows (Again)
Conforming mortgage rates continue to drop.
For the second straight week, the 30-year fixed rate mortgage fell to a new, all-time low nationwide. According to Freddie Mac’s weekly mortgage rate survey, the average 30-year fixed rate mortgage rate dropped 1 basis point to 3.83% this week for borrowers willing to pay 0.7 discount points plus a full set of closing costs.
The 15-year fixed rate mortgage also set a mortgage rate record, registering 3.05% with an accompanying 0.7 discount plus closing costs.
Discount points are a one-time, up-front closing cost, based on loan size. 0.7 discount points is equal to 0.7% of the borrowed amount. A home buyer in San Marcos opening a $200,000 mortgage and paying 0.7 discount points, therefore, would be subject to a one-time $1,400 fee paid at closing.
Borrowers wanting to avoid paying discount points can expect higher mortgage rates than Freddie Mac’s reported national average.
Falling mortgage rates are nothing new throughout California. Since peaking in February 2011, mortgage rates of all types have been in steady decline. The 30-year fixed rate mortgage has shed 122 basis points since that date, falling from 5.05%; the 15-year fixed rate mortgage has shed 124 basis points, falling from 4.29%.
Low mortgage rates give today’s home buyers additional purchasing power, stretching home affordability to new heights.
Low rates also help existing homeowners to lower monthly mortgage payments. For example, as compared to mortgage rates just 15 months ago, homeowners refinancing into today’s 30-year fixed rate mortgage stand to save 13.4 percent on their respective mortgage payments.
A comparison :
- February 2011 : $539.88 principal + interest per $100,000 borrowed
- May 2012 : $467.67 principal + interest per $100,000 borrowed
A homeowner with a $300,000 mortgage at February 2011 30-year fixed rate mortgage rates would save $2,600 annually with a refinance to this week’s low rates. Even accounting for discount points and closing costs, the “break-even point” on savings like that comes relatively quickly.
Mortgage rates can’t be predicted so there’s no guarantee of low rates forever. If today’s rates meet your budget, consider locking something in. Speak with your loan officer about your options.
8-Fold Increase In “Improving Markets” Since September
The economic recovery continues nationwide, but the recovery’s an uneven one.
Some metropolitan areas are faring very well this year, posting measurable gains in both employment and housing. Other metropolitan areas, by contrast, are struggling.
To help identify those markets in which growth is occurring, the National Association of Homebuilders created the Improving Market Index, a metric analyzing three separate, independently-collected data series “indicative of improving economic health”.
The IMI’s three collected data series are :
- Employment Growth (as published by the Bureau of Labor Statistics)
- Home Price Growth (as published by Freddie Mac)
- Single-Family Housing Growth (as published by the Census Bureau)
A metropolitan area is considered to be “improving” if all three indicators show growth at least six months after the respective area’s most recent trough, or “bottoming out”.
In May, there are exactly 100 U.S. markets that qualify for the NAHB’s Improving Market Index, down from 101 last month but higher by more than 800% from the reading in September 2011, the index’s inaugural release.
17 areas were added to the Improving Market Index list this month including Phoenix, Arizona; Ann Arbor, Michigan; and Bend, Oregon. 18 areas were removed from the May IMI.
83 metropolitan areas remained from April.
There is little actionable information in the Improving Markets Index but the report does a good job of highlighting how “real estate markets” can’t be summarized on a national level and remain relevant to everyday home buyers and sellers across California and nationwide. For example, Fort Collins, Colorado is listed as an Improving Market. However, Greeley, Colorado — located just 30 miles away — was just downgraded from the same list.
Home values and economies vary by region, by state, by city, by neighborhood, and even by street.
The complete Improving Markets Index can be viewed at the NAHB website but for the best read of what’s happening in your neighborhood, talk to a local real estate agent.
With LIBOR Low, Don’t Rush To Refinance Your ARM
Is your mortgage scheduled to adjust this season? You may want to let it. This year’s ARM-holding homeowners in California are finding out that an adjusting mortgage may be the simplest way to get access to today’s low mortgage rates — without paying the closing costs.
Currently, conventional adjustable-rate mortgages are adjusting to near 3.00 percent.
If your home is financed via an adjustable-rate mortgage, you’re likely cognizant of your loan’s life-cycle. At first, your ARM’s initial mortgage rate is agreed upon between you and your lender, a rate that both parties agree will remain in place from anywhere from one to 10 years, with periods of five and seven years being most common.
Then, after the initial “teaser rate” expires, the mortgage’s mortgage rate adjusts according to a pre-determined formula — one that’s also agreed upon at closing. The loan is then subject to an identical mortgage rate adjustment every 12 months thereafter until the loan is paid in full.
The most common conforming mortgage adjustment formula is to add 2.25 percent to the then-current 12-month LIBOR rate.
Today’s 12-month LIBOR is 1.05% so, as a real-life example, an adjustable-rate mortgage that’s leaving its teaser rate period this week would adjust to 3.30%.
If you’re a homeowner who took a 7-year ARM in 2005, or a 5-year ARM in 2007, your newly-adjusted mortgage rate should be roughly 2 percent lower than your initial teaser rate. On a $250,000 mortgage, a 2 percent mortgage rate reduction yields $298 in monthly savings.
Therefore, if you have an adjustable-rate mortgage that’s due to reset, don’t rush to refinance it. For at least one more year, you can benefit from low mortgage rates and low payments.
As for next year’s adjustment, however, that’s anyone’s guess.
Reverse Mortgages Pros And Cons
Despite several big-name banks pulling the product from their respective home loan offerings, reverse mortgages remain a popular mortgage choice among homeowners aged 62 or over.
A reverse mortgage is exactly what it sounds like — a mortgage in reverse. Rather than borrow a fixed amount of money then pay that loan balance down to zero as with a “forward” mortgage, a reverse mortgage starts at a given loan balance and works its way up as scheduled payments are added to the existing loan balance.
This 4-minute piece from NBC’s The Today Show highlights a few pros and cons of reverse mortgages, and the reasons why you may want to consider one, including :
- No mortgage payments are ever due on your home
- There is no credit check required for a reverse mortgage
- There is no income requirement to qualify for a reverse mortgage
There are some basic qualification standards for the reverse mortgage program including a requirement that all borrowers on title must be 62 years of age or older; and that the subject property be a primary residence. Loan fees can also be higher than with a conventional-type mortgage.
If you meet the qualification standards, though, with a reverse mortgage, you have flexibility in how your home equity is distributed to you. You can receive a lump-sum payment, elect for monthly installments over time, create a line of credit, or a combination of all three.
Like all mortgages, reverse mortgages are complex instruments. That’s one reason why all reverse mortgage borrowers are required to attend counseling — the government wants you to be certain that you understand the nuances of the reverse mortgage program.
Your lender will want you to understand the program, too.
Free Fresno short sale training event this Wednesday
FREE Short Sale Training!
The short sale market is BOOMING! Learn new marketing strategies to get more short sale listings AND more importantly, get insider tips on how to get them closed!
Text “srgliz” to 90210 to RSVP or reply by email!
Lee Honish presents a 3 hours course Fresno short sale sale marketing course that is sure to boost your business in 2012. This is a FREE short sale training event hosted by Summit Realty Group Fresno but seating is limited! Text “srgliz” to 90210 or email us to RSVP to secure your seat to this FREE short sale training event.
Bring your stuck short sale files for FREE one-on-one short sale coaching from industry leaders on how to get them closed!
——————–
Day: May 9th, 2012
Time: 1-4pm
Location: 4741 W Spruce Ave, Suite 104, Fresno CA 93722
Plus…get Monster Marketing from Lee Honish for over 60% off the retail price on the day of the event!
Text “mobilerealtors” to 90210 to Enter to win a Free Sprint Tablet from Summit Realty Group!
Small Repairs That Can Raise Your Sales Price
If you’re actively preparing to list your home for sale, resist the temptation to make major home improvements. Nationwide, home improvement projects recoup just 58 cents on the dollar, says Remodeling Magazine.
Rather, for a better return on your time and money, focus on the minor projects instead. It’s the smaller projects in San Marcos that tend to have a bigger, long-term payoff.
So, how do you determine which projects are the “smaller ones”? It’s obvious when you think like a buyer.
Consider : Home buyers don’t always notice when your home is in working order. In fact, they expect it to be that way. What they do notice, however, is when things are “broken”. When a buyer sees torn screens in your windows or burnt out light bulbs, it makes him wonder what else in the home has not been cared for.
This is one reason why — especially during warmer months — it’s sensible to hire an exterminator prior to selling your home. If a prospective buyer uncovers bugs in your bathroom, it can leave a lasting, negative impression — one that won’t likely lead to a purchase contrast.
So, with “small repairs” in mind, here are 5 simple projects that you can tackle in a weekend, and that will help your home show better. Each is low-cost and high-impact:
- Repair or remove torn screen doors
- Fix all leaky faucets and toilets
- Touch up holes and cracks in paint, interior and exterior
- Apply a lubricant to squeaky doors and cabinets
- Get “clutter” into storage and physically out of the way
In addition, you’ll want to pull weeds from your yard, seed any bare spots you find, and lay down fresh mulch, where appropriate.
You won’t need to spend big bucks to get your home ready for sale but the time spent on repairs will have a pay-off in the end. Homes that show better often sell much faster, and at higher prices.
Planning For A Memorial Day Closing
Planning to close on your home at the end of May? Plan ahead. Memorial Day is coming and the holiday may delay your closing.
Memorial Day marks the unofficial start of summer and the 3-day Memorial Day weekend is a popular vacation time in real estate-related industries.
Real estate agents tend to take time off because fewer of their clients are actively home shopping on a holiday weekend; mortgage lenders are closed because banks don’t operate on a federal holiday; and, title agents are often away from the office because the former two groups aren’t working.
But what’s supposed to be a 3-day weekend is actually a 4.5-day one. This is because many people leaving for a Memorial Day vacation will not go to work on the Friday before the holiday, and then getting back into the “work groove” on Tuesday can be a half-day affair.
Therefore, if you’re under contract to buy a home in Carlsbad , or to sell one; or if you have a refinance in progress that’s expected to close at month-end, there are some steps you should take to get pro-active with your closing. If you’re going to lose 4-and-a-half days at the end of the month, you’ll want to try to make those days up while the month is still young.
Here are 3 quick tips to speed up your closing and approval.
First, get your homeowners insurance policy picked out. Do your comparison shopping, select an insurer, and then prepay your first year of insurance, effective your closing date. Pay by check and not credit card, if possible, to avoid harming your credit score.
Provide your proof of payment to your lender immediately.
Next, if you’re using a Power of Attorney, have your documents signed by all interested parties and submit them to your lender for review. Don’t assume that your attorney’s Power of Attorney documents will be acceptable to a bank — banks require specific verbiage. If the documents are rejected, make the requested fixes and resubmit.
Banks do not compromise on Power of Attorney letters.
And, lastly, if you’re accepting gifts or using retirement funds for your downpayment, be sure to have your paperwork reviewed and on file with your lender as soon as possible. Do not wait to withdraw funds until just before closing, either. Have everything in the proper checking account at least one week in advance, and ready for your closing.
There are other steps you can take, too, to make sure your end-of-May closing goes smoothly and they all amount to “preparedness”.
When you’re asked for paperwork, provide it quickly. When you’re asked to sign a document, sign it on the same day. When you’re needed to attend a home inspection or an appraisal, do it during your first available opening.
Just leave as little as possible to the “last minute”, and everything should go well.
Make A Mortgage Rate Plan Ahead Of The Jobs Report
Been shopping for a mortgage rate? You may want to lock something down. Tomorrow morning, mortgage rates are expected to change. Unfortunately, we don’t know in which direction they’ll move.
It’s a risky time for California home buyers to be without a locked mortgage rate.
The action begins at 8:30 A.M. ET Friday. This is when the government’s Bureau of Labor Statistics releases its April Non-Farm Payrolls report.
The monthly Non-Farm Payrolls report is more commonly known as “the jobs report” and provides a sector-by-sector breakdown of the U.S. employment situation, including changes in the Unemployment Rate.
In March 2012, the government reported 120,000 net new jobs created — half the number created during the month prior, and the third straight month of declining job creation. The Unemployment Rate fell one-tenth of one percent to 8.2%.
For April, economists expect to see 160,000 net new jobs created, and no change in the national Unemployment Rate.
Based on the accuracy of those predictions, mortgage rates in Oceanside are subject to change. If the actual number of jobs created in April exceeds economist expectations, mortgage rates should rise. Conversely, if the actual number of jobs created falls short, mortgage rates should drop.
Job growth’s link to mortgage rates is straight-forward. Jobs are an economic growth engine and mortgage rates are based economic expectation. Therefore, as the number of people entering the U.S. workforce increases, so do Wall Street’s growth projections for the economy. When that happens — especially in a recovering economy such as this one – mortgage rates tend to rise.
So, for today’s rate shoppers, Friday’s job report represents a risk. The economy has created jobs for 18 straight months, a winning streak that has added 2.9 million people to the U.S. workforce. If that winning streak continues and expectations are beat, mortgage rates are likely to rise off their all-time lows, harming home affordability in Ranch Del Oro, among other areas.
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