Alhambra Real Estate
Alhambra Homes For Sale - Investing in Real Estates of Alhambra, CA

Don’t Overlook the Benefit of Current Rates
By Lee Lieberg

January 15, 2008

A good loan can take much of the risk out of buying a home. As news of mortgage defaults continues to bombard us, attractive conventional financing is one of the silver linings in this real estate market. For many potential homeowners, buying now might be a good time to lock in a favorable long term loan. By getting a fixed mortgage you will always know what your monthly payment is going to be. Hopefully, if you can afford it today, you will have an easier time paying it in the future.

This may still be a good time to buy in the right circumstances. Existing homeowners who are looking for a new home are not as affected by the timing of market trends because they are both selling and buying. Renters who have the capital and income to buy are usually better off owning to benefit from the tax advantages, IRS deductions and long term appreciation. To lock in at current rates on a new home could be a smart move.

A conforming loan on a single home/condo is anything less than $417,000. Everything over $417,000 is a non-conforming loan (jumbo). With the average price of all the condominiums and homes sold in Alhambra last year at $520,503 many buyers can put enough down to get conforming loans by either bringing equity from the sale of their previous home, or finding an entry level priced home.

Jeffrey Hsiao of Countrywide Home Loans provided rates as of January 15, 2008. The 30 year fixed rate for a conforming loan was 5.625%, a good rate by historical standards. Unfortunately the rates on non-conforming loans are much higher at the present time, 7.375%. Due to the current crisis in the mortgage industry this spread between conforming rates and jumbo rates is wider than normal.

To service $417,000 worth of debt at 5.625% for a 30 year note is $2,400.49 a month. A loan of $418,000 at 7.375% for the same 30 year term requires a payment of $2,887.02. The difference of $486.53 each month will amount to increased payments of $5,838.36 each year. This is obviously the most dramatic example of the cost of financing for the two loans, which I intentionally chose it to illustrate the current gap and the effect the interest rate has on your payment.

Lenders have tightened up the requirements to obtain a loan. Gone are the days of 100% financing without any documentation. Now you can expect to be asked for tax returns, W-2’s, bank statements, liquid reserves etc.

So while we are still in an uncertain real estate climate, look at each opportunity on its own merit and you may be surprised at what makes sense.
 

*Data was obtained from California MLS Alliance and deemed to be reliable. Lee Lieberg can be contacted at lee.lieberg@dilbeck.com.