Long Beach California Real Estate Loans

Long Beach, Ca.  Recently, there has been a lot of talk about how raising the FHA loan limits last week would affect us in the real estate markets.

 

Considering that in the six counties of Southern California that the average sales price in January, 2008 was $415,000.00 and that this was down from $505,000.00 back in February 2007.  STOP!  Did everyone just get that?  Southern California home prices have come down $90,000.00 in just twelve months and currently 21% of all sales are foreclosures that have been resold into the marketplace.

 

Clearly, this downward pressure on the real estate prices and with real inflation spiraling into the double digits coupled with the price of sweet crude rising from $100 a barrel to $109 a barrel in the course of just one week, referred to as the, "economic shot not heard around the world," because it was not given the attention that it should have had in the major news networks.  We see our economy nose diving in a manner never seen by the vast majority of fun loving Americans.  Without sounding histrionic, perhaps this is the time to ask our grandparents what it was like to live through the Great Depression.  One thing for certain, all of our lives are dynamically being effected.

 

Then why should you purchase real estate?  Because the best part of real estate is the "real" part.  It is an asset that no matter how much the Fed devaluates the dollar, still has intrinsic value like any other real commodity.  No matter how much the Federal Reserve devaluates the Dollar, your home still will retain intrinsic value and if you fix your mortgage for 30 years, every year you will be paying back the mortage at a fixed price of the dollar's buyiny power in 2008.  Thus, imagine five years from now, paying your mortgage in 2008 dollars!  You are taking advantage of inflation and giving it back to the system.

 

When it comes to mortgage financing,   loan officers have seen more changes in available programs in the last twelve months then the previous twenty years combined.  As a practicing mortgage professional, we are seeing adjustments and wholesale program cancellations almost on a daily basis.  This is partially due to the sub-prime credit debacle but also because of the general lack of available liquidity in the markets.  Thus, I was skeptical last week when the FHA loan limits on single family homes in Los Angeles County were raised to $729,750.00 a dramatic increase of over $350,000.00 for a single family residence.

 

Last week end, an agent called with a loan scenario:  a certain couple that currently earns over $135,000.00 a year in income (he's an engineer and she is a registered nurse), would like to purchase a home in Long Beach with a sales price of $620,000.00.  Previously, this would have been a jumbo loan amount, which due to the credit crunch, would be very difficult to finance. 

 

Currently FHA requires that a home buyer contributes a min. of 3% down towards the sales price, the seller can pay the difference of any outstanding closing costs as long as it is written into the contract.  However; with the new FHA loan limits going up. The couple can put down only 2.5% toward the down payment or $15,500.00 this will bring the base loan amount to $604,500.00.   In addition we have to finance a special one time Mortgage Insurance Premium of 1.5% of the base loan amount or $9067.50 which will be added to the base loan amount to make a total loan amount of $613567.50.   With a 6% 30 year fixed rate loan,  the Principle and Interest payment will be $3678.65.  Los Angeles County property taxes are 1.25% of the sales price a year or $645.83 a month.  Hazard insurance will be $50.00 a month and monthly mortgage insurance will be $251.88/month.  All together, the total payment will be $4626.36/m.  Now, who really wants a $4600/m house payment these days?:    A couple who is getting reamed with 28% of their income going to pay Federal income taxes....

 

Besides the pride of home ownership, let's look at the real reason anyone would want such a payment.  If you are earning over $128,500.00 a year and report your taxes as "Married filing jointly," this would put you into the 28% federal income tax bracket.  In our case, this couple is currently paying 28% of their income in Federal Income tax or $37,800.00 a year.  By purchasing a home, all of the interest paid per year or $36,814.05, and all of the property taxes paid per year($7750.00)  are tax deductions; thus, lowering the taxable income to $90,435.95, with a tax structure that penalized people for making more money and rewards others for making less by taxing them less, the new Federal tax obligation for this couple will be 25% $22,608.99 creating an annual savings of $15191.01 in federal income tax alone.  If you take this savings over a year it equals a monthly federal tax savings of $1265.92.  When you subtract this from the new mortgage payment, the actual cost of buying a home for this couple is $4626.36-$1265.92 or $3360.44/m.  Not bad for a couple who grosses over $11,250.00 a month with good job security.