Frequently Asked Questions
Q: The media keeps saying that prices will drop a lot further. Should I wait to buy?
A: Many foreign buyers are actively purchasing in this area now, as their dollar is much more valuable than it’s been in years. The Arizona Republic reported in the Feb 3rd, 2008 Business section that “several well known real-estate players are buying…” Catherine Reagor, the real estate columnist for the Republic said “Arizona economist and real estate investor Elliott Pollack is buying” and “longtime builder Greg Hancock, who sold his last housing firm to publicly traded Meritage Homes of Scottsdale, has invested in some lots in Pinal County.” Deep pocketed investors are positioning themselves well for the next market cycle by buying now. The expert’s crystal balls aren’t accurate enough to predict the exact bottom of this cycle but if knowledgeable investors are buying now, I pay attention! If you are a speculator looking only to make a short term profit, you may want to wait for market statistics to prove we have hit the bottom of this cycle and are on the way back up. If you are a potential homeowner who intends to occupy your home for a few years and aren’t living paycheck to paycheck, this may be an opportunity to make a smart purchase.
Q: I hear that there are a lot of foreclosures right now and short sales. I bet the bank will take a lot less than market value for short sales and foreclosure properties.
A: Unfortunately, there are a lot of bank owned and over encumbered properties on the market right now. Short sales and foreclosure properties are different. Banks own foreclosure properties and have had appraisals and several broker price opinions completed before putting the home back on the market. A short sale occurs when a property is still owned by the homeowner and the bank approves a payoff that is less than the current principle balance.
A short sale can be approved by the lender under certain circumstances. The first requirement is that the homeowner has a documentable hardship and is willing to provide the extensive written documentation required. Unfortunately, a declining market value doesn’t count as a “hardship” under the short sale requirements. If the seller has a documentable hardship and is willing to jump through all the hoops required for short sale approval by the mortgage company, they will not sell it for less than market value. Regardless of whether it is a foreclosure or a short sale, if a home in the same neighborhood with the same floor plan sold two weeks ago, the bank may not be willing to accept a sales price less than that property sold for.
A final note on buying distressed properties: In the case of a foreclosure property, there may be significant deferred maintenance. If you are unable to complete repairs yourself, it may cost more in the long run to hire professionals to bring the property back to reasonable condition. Professional home inspections are highly recommended for any potential property purchase. In the case of a short sale, the lender can take a month or more to consider whether they will approve a reduced payoff. If you are on a specific time frame, waiting for a long time for bank approval to proceed can be frustrating and ultimately cost you money with a higher interest rate.
Q: With so many properties on the market, the seller has to take a lot less. If I can’t “steal” it I’m not interested. There are plenty of other houses for me to buy.
A: There are a lot of homes for sale and buyers have more choices and more negotiating room than they’ve had in years and interest rates under 6% make homes more affordable than they have been in recent years! Many builders have dramatically curtailed the building of spec homes and some have begun to raise prices slightly on homes to be constructed for a specific homebuyer. The prices of new homes are once again higher than the price of a similar resale home. The inventory levels of active listings in Casa Grande have declined each of the last three months and are at the lowest level since June of 2007. The median sold price in Casa Grande in January 2008 was $154,750 with the highest median sales price occurring in August of 2006 at $196,000. Interestingly, at that time there were 873 resale homes on the market and there were 953 active resale listings on the market last month. New spec homes (completed new homes ready to move in) were much more plentiful in 2006 than they were last month.
Q: Will mortgage interest rates drop lower? I want to wait to buy or refinance because I know rates will drop again.
A: The Federal Reserve has lowered rates five times since September. Many people expected the 2.25% reduction in the Discount Rate and Fed Funds Rate to result in lower mortgage rates. In reality, mortgage rates and the interest rates reduced by the Fed are different animals. Mortgage rates can be in effect for 30 years while the rates set by the Fed can change from day to day. If past history is any indicator, we could anticipate mortgage rates actually rising as a result of anticipated inflation. In 2001, the Fed cut the Fed Fund rates from 6% to 1.75% over 11 months and because inflation grew, long term mortgage rates increased. The recent volatility and losses in the stock market indicate investors concern. The lowest rates we’ve seen to date occurred for about 3 hours immediately following the Jan 23rd rate cut. Rates have increased slightly since then and have hovered in the mid 5% range.
The following answers have been provided by Wendy Devereaux of Suburban Mortgage, Inc.
Q: I keep hearing about different types of loan programs and that loan limits will be raised. What are the maximum loan amounts for FHA and is it possible to get a jumbo loan financed in Pinal County?
A: In regard to FHA loan amounts, following President Bush’s approval of the Stimulus Act the current FHA limit for Pinal County is $346,250.
Jumbo loans are available but subject to declining market restrictions set forth by the specific loan investors. These vary per investor, but the appealing option is our source which views loan amounts up to $750,000 without “jumbo” rate adjustments.
Q: I have heard that it is impossible to get 100% financing anymore. Just how much are the down payment requirements and can family members” gift” down payments and closing costs?
A: 100% purchase financing is available, but very restrictive. Most buyers will be required to pay a down payment. Certain programs allow a family member to gift the down payment. FHA, for example, has a 3% down payment requirement. The down payment and closing costs may be gifted by a family member, without limitation on amount. This process must be carefully documented to verify the funds are in fact a gift and not new debt.
Q: I’ve heard that your credit score determines whether you will get a loan and what the interest rate is. How important is credit?
A: Credit is very important, more than in the past due to the elimination of aggressive sub-prime lending. Not only is a lender reviewing the credit to determine loan eligibility, the mortgage insurance industry has also tightened standards to lessen their risk. The result is that certain loans may not be approved, even when the borrowers can afford the payment.
