Silicon Valley Real Estate Blog - 1SiliconValley.com

"That’s a lot sooner than I expected," she said as we walked out of the open house towards my car.  He nodded and I mentally went back over my notes about their priorities.  We hadn’t seen that many homes so I wanted to ask a few gentle questions to make sure they were getting what they wanted before putting in an offer. 

This wasn’t their first time buying a home.  Their family had done it a couple times before, here in Silicon Valley and in a different state.  But each time, there was a mad dash.  "It was never clear when we needed the money," she intimated after taking a sip from her water bottle.  She and her husband looked at each other with a knowing glance and he chimed in, "We lost a couple places because of liquidity before."

There are a lot of moving parts in buying real estate, but for the buyer, the lynchpin for the transaction — and the greatest source of stress — is getting money to the right place at the right time.  I want to ensure that my clients have a transaction that’s as stress-free as possible, and part of that is reducing the uncertainty in the process. 

Here are some of the tips I provide my clients on how to prepare their money for buying a home and they impact the strength of their purchase offers.

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May.30.2007 [ Filed under: Mortgages, Home Buyers, Silicon Valley News ] Comment Here »

Shake, shake, shake.  "Reply hazy, ask again," it says.  

For people looking to buy a home in Silicon Valley, it's the age-old question: "What are interest rates going to do?"  Especially since the difference between 6% and 6.25% on an $800,000 mortgage (30-year principal and interest) adds up to $129.34 per month.  I'd rather see that money go towards things that make you happy than on some lender's bottom line.

Data compiled since April 1971 shows that interest rates are historically low right now.  You don't need to take my word for that — the Federal Reserve does their own surveys.

The challenge is that predicting interest rates is something no one can do accurately.  Global events such as the oil embargo in the 70s or 9/11 in 2001, which have a major impact on interest rates, can't be predicted with any certainty.  That's why mortgage lenders treat money like the commodity it is: in essence, they price their products based on how expensive the money is for the period when they need to use it.

While there is no crystal ball for determining what rates are going to do today, tomorrow, next month or next year, I'll present some "back-of-the-envelope" ways to tell which way the wind is blowing when it comes time for you to buy a house in Silicon Valley.

Be forewarned, this article is a lot more esoteric than usual and given the unpredictable nature of interest rates, needs to be disclaimed more than usual too!

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Apr.16.2007 [ Filed under: Mortgages ] Comment Here »

Suppose you were just a month late paying a bill a couple of months ago (the bill got lost in your desk).  When it comes to your mortgage application, that's not such a big thing, compared to a bankruptcy or people who have a history of late payments, is it?

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Apr.09.2007 [ Filed under: Mortgages ] 2 Comments »

Different lenders interpret income in different ways.  But there are some general parameters that lenders tend to adhere to and that you should know about before your refinance or buy a property.  We'll discuss both people who are self-employed and employed by others.

Self-Employed

If you are self-employed, you must have been in business for at least two full years. The lender will require your two most recent full federal tax returns, then calculate your income by averaging the two years.
 
Self-employed people include:

• Sole proprietors (they must provide Schedule C on federal tax form 1040).

• Partners (income is generally reflected on Schedule E and in a KI).

• People with a 20 percent or more interest in a corporation (they must provide W2s, plus form 1040, plus corporate returns on form 1120).

• Salespeople who derive their sole income from commissions, even if they receive W2s.

When analyzing a Schedule C, lenders don't use the figure for gross revenues received but look at net after expenses.  However, certain items, such as a home office expense or depreciation can be added back in.  Although an income and expense statement for the current year is required, it's given little weight, particularly if it shows a large difference between the income and expense statement and the previous year's tax return.

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Apr.02.2007 [ Filed under: Mortgages ] Comment Here »

[ed. My friend David Marx joins us again for this week's edition of Mortgage Monday.  He is principal of Dacor Financial and brings us his multiple decades of expertise as a mortgage broker.]

When evaluating a loan, our lenders consider four major factors.  What's interesting is that the priority of the factors has radically changed since 1983, when I started in the business.  Here's a little game to illustrate what the differences are!

Each factor is discussed below in no particular order.  As you read, take a moment to prioritize these factors the way you think a lender would today. Then try to prioritize them as a lender would have back in the 1980s.

Hint: The No. 1 factor in the 1980s is the No. 4 factor today.

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Mar.26.2007 [ Filed under: Mortgages, Home Buyers ] Comment Here »

There are three key facts to note about current interest rates.  These facts are based on the data the Federal Reserve has published on the internet for the period from April 1971 to February 2007.  The statistics are for 30-year fixed mortgages.

1/  The average interest rate over that period was 9.26%.  The median was 8.75%.

2/  During that period of 431 months, interest rates were higher than they were in February 2007 for 386 of them (89.5% of the time).

3/  The only period in the last 26 years when mortgage rates were lower than February 2007 was between September 2002 and October 2005. 

So if people say that "mortgage rates are at historic lows" without exclamation points, you don't need question marks: it's an accurate statement for at least the last 36 years of data.

(c) Steve Leung for the Silicon Valley Real Estate Blog at 1SiliconValley.com

Mar.24.2007 [ Filed under: Mortgages ] Comment Here »

[ed.  Hello!  My friend David Marx joins us for this week's edition of Mortgage Monday.  He is principal of Dacor Financial and brings us his multiple decades of expertise as a mortgage broker.  Please join me in welcoming him!]

How is your rate determined?  The process is based on a myriad of criteria, with that criteria varying from lender to lender. For example, the pricing for a 30-year fixed-rate loan from just one lender can come in at some 80 different prices, depending on such factors as the lock period and cost of rebates!

And lenders may offer as many as 10 different interest rates ranging in increments as small as 0.125 percent (1/8%).  Each interest rate will earn a different price in terms of the number of points you have to pay.

On top of that, different lenders offer better programs for certain scenarios than others.  For example, if you're financing a non-owner-occupied property, you'll incur an additional fee.  And some lenders fees will be higher than others.  The mortgage broker's job is to sift through the lender lists of surcharges and price adjustments, and then determine which lender offers the best rate relative to your specific transaction.

Here are some of the factors that alone or in combination may affect the interest rate and the price of your loan.

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Mar.19.2007 [ Filed under: Mortgages, Home Buyers ] Comment Here »

The beauty of real estate is that you can apply a lot of its concepts to other areas.  In this case, Money Crashers writes about being upside-down on a car loan and bootstrapping your way out of a situation where you owe more on the loan than your car is worth.

Traditionally it's been easier to go upside-down with cars because of the massive upfront depreciation once you drive it off the lot (and personal finance gurus will say that you should let someone else take the hit on the first two years of depreciation and buy used).

But being upside-down with negative equity in your house is happening more often because of housing depreciation in many areas as well as the negative amortization on many subprime loans.  Many people in that situation just take the credit hit and walk away.  Some have to.  

I heard a joke (at least, I hope it was a joke!) that Washington Mutual is going to be the biggest land owner in the U.S. over the next few years.  The key to ensuring that your standard-of-living goes up when you buy a house is to make sure you don't spend more than you can afford financially and psychologically. 

But catastrophic depreciation in Silicon Valley real estate, while an extremely popular notion, is offset by any of the high-paying jobs you, your neighbors, and their bosses have, plus additional growth.  Yes, there are less jobs here than during the tech bubble, but you have to be careful with statistics and inflection points — jobs are coming back, and while our Bay Area real estate market is correcting, it's not correcting using a pinprick.  

Mar.14.2007 [ Filed under: Bay Area Real Estate, Mortgages ] Comment Here »

Now that the bloom is off the predatory lending rose for this real estate cycle, it seems impossible for people in the Bay Area without a six-figure income (and challenging even for those with) to purchase their own home. 

After all with a February 2007 median sale price for single-family homes of $790K in Santa Clara County (and $870K in San Mateo County), the amount of the mortgage and its monthly payments seem insurmountable, particularly in the face of all the 1% interest subterfuge that's been going on.

I ran across an article on My Money Blog that outlines the steps Bay Area woman took to buy her own home and discusses the trade-offs she made.  She not only made sure she was in a good position to buy a house, she was also willing to make some hard decisions.

Some of the hardest decisions she had to make were in terms of her goals and financial attitude.  Here are some of the things she did right and some of the questions you should ask yourself, whether you earn six-figures or not.

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Mar.13.2007 [ Filed under: Bay Area Real Estate, Mortgages, Home Buyers, Silicon Valley News ] 2 Comments »

"No."  It's a simple word but one that hasn't been heard from a lot of mortgage lenders over the past few years. 

Beginning with a period of historically low interest rates set by the Federal Reserve which dovetailed into the [ed: snark alert] almost artistic creativity in developing high-margin products for people with marginal credit looking to buy a house, lenders haven't had much of a reason to use the word which must not be spoken aloud to a customer.

Altos Research writes about trouble staying in business at subprime lenders New Century Financial and Fremont General.  And another subprime darling, Novastar Financial has seen its stock do the windsheer formation.

Bad credit, no credit, no money, no problem, right?  The tide is turning…

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Mar.12.2007 [ Filed under: Bay Area Real Estate, Mortgages ] Comment Here »