What You Should Know About Loans

Let’s demystify loans and the information that you should know. We will start with the difference between conventional loans and FHA loans. Then we will look at loan limits and finish up with what you should look out for when it comes to loans.

What is a conventional loan? What is an FHA loan? What is the difference? Conventional loans are those that are set forth by Freddie Mac and Fannie Mae and made available to various lenders such as Mission Hills Mortgage, Bank of America and many others. Their interest rates are driven by FICO scores (FICO is the acronym for Fair Isaac Corporation, a publicly-traded corporation that created the best-known and most widely used credit score model in the U.S.) and the type of property being purchased. The down payment requirement is 10% and require private mortgage insurance (PMI) on their loans unless you have a 20% down payment.

FHA is referred to as the working person’s loan. One myth about FHA loans is that they are for first time homebuyers only; however, it is actually for anyone that qualifies as long as it is for your primary residence. The loans they provide are not FICO score driven and they have a much lower down payment requirement of 3.5%. They don’t require PMI but they do require Mortgage Insurance Premium which is pretty much their version of PMI. The cost of MIP is about 1 ¾ percent of the purchase price minus the down payment. One advantage of an FHA loan is forbearance. If something happens to your family that results in death or disability FHA can step in and take your loan from the lender and help you by allowing you to miss up to 18 months of payments on your mortgage. You will still have to pay all your other bills such as property taxes and insurance, but you won’t have to worry about your mortgage.

There are different loan limits for each of these programs. When it comes to conventional loans, the limit is 417,000 in the Orange County area and they have a high balance loan limit of 625,500 which also carries a higher interest rate. The FHA loan limit is 729,500 (Orange County area.)

When looking for loans, there are some factors that you should be aware of. Interest rates are usually the first thing consumers are concerned about. The current rate for conventional loans is 4.875% and the FHA rate is 5.0% with a 30 day lock, which brings us to the next thing you should know. A 30 day lock refers to the number of days that an interest rate on a loan is valid. When the lock expires your interest rate is no longer valid. When it comes to the interest rate, there are several things that can affect the actual rate that you end up with. These are your FICO scores, type of property, and whether or not you choose to open an escrow account.

All the information presented was provided through a conversation with Dawn McConnell of Mission Hills Mortgage. If you would like more information about loans and interest rates please feel free to contact Dawn at:

Dawn McConnell
562.682.1855
dmcconnell@mhmb.com


If you have any questions related to real estate or if you would like to know more about a specific topic please let me know.

David Cuevas
Prudential California Realty
housingbydavid@verizon.net
www.housingbydavid.com

What's Happening With The Market...

With all the media out there reporting nothing but doom and gloom for the real estate market, I thought I would shed some light on some of the news that is not being reported.

The charts to the left are representations of supply and demand for real estate in the Orange County area. (Click on them for a larger image.)

The chart in red is a visual representation of the number of homes for sale each month in the past year. The green chart is representative of the number of homes that were sold starting in April of 2008 and ending in April of 2009. The blue chart is the number of homes under contract.



So what does all this mean and why is it good news? It all goes back to supply and demand. As you can see by looking at the red and blue charts, the supply is decreasing while the demand is increasing. If this trend continues there will be a period of stabilization. When there is stabilization, the number of houses being sold (supply), and the number of houses being bought, (demand), will be around the same number. As the number of houses for sale decreases and the number of sold houses increases, we could see an increase in the median house price, which is currently $385,000.

How do we know that demand (number of houses sold) will go up? That is where the Blue chart comes in. This chart shows all the homes currently under contract or in escrow. These homes are scheduled to close escrow in May. As of the time of this article, the number of homes under contract is 3,456 units. This is the highest it has been for at least the past year.

So why is this good news? Well, if the numbers are showing that we are starting to go up with demand and down with supply, the prices of houses, in theory, are on their way up. How high? Only time can tell us. However, this truly goes to show that now is the time to buy if you can afford it. There are great deals to be had and the interest rates are low which means that payments are low.

If you would like information specific to your area or if you would like to know your homes' approximate value, please e-mail me and I would be glad to assist you.

Thank you for reading, and as always, if you have any questions about real estate or a related fields please shoot me an email.

David Cuevas
Prudential California Realty
housingbydavid@verizon.net
www.housingbydavid.com