Contra Costa, California Real Estate

Are you trying to time the real estate market?  Don't forget the impact of rising interest rates.

Many home buyers are struggling with the decision to purchase.  Are home prices at the bottom? Will they decline further?  Should we buy now or wait?  But there is another factor that many home buyers fail to consider when making their decision to buy or wait, the impact of rising interest rates. 

Mortgage lenders issue their loan approvals based on a Qualifying Monthly Payment which is typically the maximum payment at which the lender will provide your mortgage financing.  The qualifying monthly payment is on a seesaw between interest rates and home prices. 

As interest rates rise, you will have to look at lower priced homes to qualify for your mortgage financing.

Let me give you an example, if you currently qualify to purchase a $430,000 home at an interest rate of 4.50%, the chart below demonstrates the loss of home buying power that results from rising rates.

An approximate "rule of thumb" to remember is that a 1% rise in interest rates equals a 10% loss of buying power.

Interest rates recently rose almost 1/2% in a short two weeks [this article was posted on 12/12/10].  Armed with your new Rule of Thumb, you know this results in a 5% loss of purchasing power.  Does that mean you should run out and buy a home RIGHT NOW?  That entirely depends on your price range and local real estate market.  In some price ranges and markets, the home prices have not only stabilized but are starting to rise. 

If you are a buyer in Contra Costa county of Northern California and DON'T KNOW if your price range has stabilized, sign up to receive a Buyer's Market Report and find out.  If you're outside my market, contact a professional Realtor in your area. Don't get hit with the Double Whammy of rising prices and rising interest rates.

While it's true that many buyers can't see past what a house IS for what it CAN BE, buyers with vision can reap the rewards of numerous real estate bargains currently on the market in Contra Costa county, California.

Picture this, the house is in a great neighborhood and your preferred school district at a great price but the house is awful.  The kitchen and bathrooms haven't been updated in 20 years, the orange shag carpet is horribly stained, the flowered wallpaper would give your children nightmares and the amount of deferred maintenance throughout the house is beyond daunting.  You can see the potential and could easily afford the house at the bargain price but you don't have the additional cash to upgrade it to a nice home.  Should you walk away and find a more expensive, upgraded home that won't cost extra money out-of-pocket?  Not yet! Neglected, ugly homes can be purchased and renovated with a single Rehabilitation loan.

My example is an actual home in Walnut Creek.  It was priced at $560k ($135k under market value for the area).  The cost to renovate and upgrade was $55k.  A smart buyer using a Rehabilitation loan ends up with an upgraded home, often immediate equity in a fabulous area and very grateful neighbors (the home was truly the dog of the neighborhood).  Want to take a guess as to the total cash-out-of pocket to purchase and renovate?  Using an FHA 203k rehabilitation loan, total cash out-of-pocket is $39,400 - that includes the down-payment, renovation costs, contingency reserves and loan costs.  FHA has another nifty option that can be combined with the rehabilitation loan - the FHA Energy Efficient mortgage.  This allows 100% financing of energy efficient upgrades subject to a Home Energy Rating System analysis.   Think of it, $0 dollars out-of-pocket for utility savings over time!

I know the question you are asking, "If this program is so great, why isn't everyone doing it?"  Easy answer......it takes extra work from both the Realtor and the buyer.  The Realtor must have the skill-set to assess the Cost to Renovate with reasonable accuracy and have a network of contractors in place to quickly obtain accurate bids for all the work to be included in the renovation.  The buyers need to compile a list of their upgrade preferences from flooring options, paint color, kitchen cabinets and counters, bathroom accessories and even light fixtures - but the good news that your list can be compiled in advance of finding the right "fixer" and writing an offer.

If a listing says Fixer, Needs TLC, Contractor Special, Cash Only or equivalent, you can purchase it with a Rehabilitation loan!

Important note:  The FHA 203k Rehabilitation program is for buyers purchasing their primary residence.  If you are interested in purchasing a real estate bargain for your vacation home or an investment property, a conventional rehabilitation programs is available.

I invite you to call or email me if you are interested in learning more about purchasing and renovating a real estate bargain.