Real estate picks up, FHA change a plus

With the wheels of Fallbrook’s real estate market now moving, evidenced in March by the third straight monthly increase in the number of property transactions being placed into escrow, it is expected that the new economic stimulus bill signed into effect March 6 by President Bush will add positive momentum to the recovery process.

The bill allows homebuyers to purchase or refinance with an Federal Housing Administration (FHA) loan up to $697,500 in San Diego County through December 31 of this year, compared to the previous ceiling of $362,790.

Since FHA loans offer 30-year fixed rate mortgages, it can help homeowners lower their monthly payment on large mortgages and escape the risks associated with sub-prime mortgage products that analysts say have caused a rapidly mounting inventory of homes from the record number of defaults and foreclosures over the past two years.

“This will make a dramatic positive impact on the $700,000-and-under market,” said Countrywide Home Loans’ Patrick Marelly, a 21-year industry veteran.

Since FHA loans require only three percent down (equity) and will accept multiple co-signers, they are what Marelly calls “powerful loans that are easier to qualify for.”

Properties can be refinanced under FHA for 97 percent of their value, or up to 95 percent if cash is being pulled out.

Marelly said the FHA rate, as of Tuesday (March 11), stands at 6.5 percent on a 30-year fixed rate loan, without points. A point, equal to one percent of the base loan amount, can be paid to reduce the interest rate.

“With points, you can get the rate below six percent,” Marelly said. “For two and one-quarter points you can do a 2-1 buy down, which means the first year your interest rate [of 6.5 percent] is reduced by two percent to 4.5 percent, the second year by one percent to 5.5 percent <and> the third through 30th year it is 6.5 percent.”

Marelly said it is not uncommon in the current market for the seller of a property to offer to pay points for the buyer to get a better interest rate in order to cinch the sale.

With FHA, the seller can pay up to six percent of the buyer’s costs, versus three percent with conventional loans.

Local real estate professionals say the changes with FHA will be a tremendous benefit to the Fallbrook/Bonsall market.

“Our office hasn’t done an FHA

in 10 years,” said Chris Hasvold, managing partner of Coldwell Banker Landmark Group. “The previous loan limit was too low for this area. Now – at almost $700,000 – it gives buying power in Fallbrook. All you have to have is three percent equity and you can get into a fixed rate FHA now.”

The FHA option is destined to provide more stability as well as opportunity in the market.

“I think it’s going to be a significant benefit, because for years we haven’t had an option of financing like that,” Hasvold said. “Now that they’ve increased the FHA loan limit to 125 percent of the median price, it opens up an avenue of finance we haven’t had for refinances and purchases.”

Hasvold agrees that the economic stimulus bill will be just what Fallbrook needs to lead the way into solid recovery.

“We opened up more new business in the month of February than any month since last June,” he said. “People finally realize this is a good deal with rates down and are taking advantage to lock in their next home with a good mortgage rate.”

Hasvold said agents affiliated with his offices are again seeing multiple offers on properties as property prices are now perceived to be at their lowest point prior to recovery.

“The leverage right now is better than when everyone jumps into the market,” Hasvold said. “Most of what we are selling right now are

on the low end, but we do have a few million-dollar properties that have just gone into escrow.”

When it comes to qualifying for an FHA home loan, Marelly explained that borrowers (collectively) should have 41 percent of their gross monthly income (or less) going toward their mortgage payment (including insurance and taxes) and consumer debt (credit cards and any other loans).

“It’s great because you can have multiple co-signers,” Hasvold added. “[FHA] is no longer a ‘first-time buyer’ program.”

Hasvold said that another positive aspect of the economic stimulus bill is that it provides a benefit for investors.

“You can get FHA financing [up to $1.3 million] on up to four units, as long as one of the units is owner-occupied,” he said. “Things are looking up!”

According to the FHA, in January 2009, the maximum loan limit will return to $362,790 unless Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA Modernization bill, which is still awaiting final approval on Capitol Hill.

How will the change in government loans help consumers?*

• More traditional FHA loans will be available. The increased loan limits for the FHA program could make more people eligible to qualify for a conventional loan. The National Association of Realtors (NAR) estimates that increasing FHA loan limits will help an additional 138,000 Americans achieve homeownership and will allow nearly 200,000 homeowners to refinance and potentially keep their homes.

• The government is lifting the Government-Sponsored Enterprises (GSEs) conforming loan limit for all homes purchased through the end of 2008. This means that larger mortgages will be eligible for government purchase (through GSEs such as Fannie Mae and Freddie Mac). When more loans are available, more people are put in a stronger buying position. However, because the increased loan limits are only in effect until the end of the year, it is critical for potential buyers to take advantage of this opportunity quickly.

• The availability of less expensive loans can potentially reduce monthly payments. With the passage of the stimulus package, people in higher-priced markets can obtain less expensive loans, which will significantly reduce their monthly payments – and potentially save them thousands of dollars throughout the life of the loan.

• More refinancing options will be available. Nearly a half-million people with higher-priced “jumbo” loans will be able to refinance to conforming loans under the provisions of the bill, which could mean savings between $200 and $500 a month, according to NAR estimates.

• Higher loan limits could help to kick-start the housing sector. The increase in loan limits could enable potential buyers who had been excluded due to limited buying power to purchase homes in higher-cost areas across the country. Additionally, NAR estimates that increased loan limits will help generate additional home sales, and as a result, reduce housing inventory and strengthen home prices by two to three percentage points.

• Positive growth in the housing market is good for the economy. Bolstering the housing sector can have a positive correlation to consumer confidence and the economy at large.

*Courtesy of Chris Hasvold, Coldwell Banker Landmark Group and Coldwell Banker Real Estate LLC.