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It’s a Buyers’ Market to the Max!
Finding the right mortgage for you
By Mercedes Pasqualetti (HLM Mortgage Company) and Nancy Bent (RE/MAX Metro Atlanta)
In today’s shifting economy, it’s hard to trust that you are on solid ground. With the news full of bailouts and bankruptcies, mergers and meltdowns, most folks are too paralyzed to spend one dime … on dinner out, much less a house.
But in truth, this is a fabulous time to buy a house! Prices are affordable. Interest rates are amazingly low. You can probably get more house than you dared dream possible. If you are a first-time homebuyer or a buyer who doesn’t need to sell a house first, you are in a great position. If you must first sell a house in order to buy, you too can benefit from this market. Even if you make less selling your house this year, compared to last year’s sales, you will probably more than make up for it with the purchase of your next house.
To help you sort through the opportunities and options in real estate, we have segmented our discussion per price break. To keep it simple, we also are only looking at single-family houses. With the understanding that the new rules for underwriting a loan are still in flux, we can give you a broad overview of what is happening in Atlanta’s current real estate market and suggest some loan programs that might work for you.
Houses selling for $100,000 or less
There are more opportunities today to buy a house for under $100,000 than there have been in many years. According to FMLS (First Multiple Listing Service), in 2008, 21% of all single-family homes sold went for $100,000 or less. Compare that to only 8% of all such sales in 2007. And there were way more houses that sold for $50,000 or under in 2008 (8%) versus 2007 (less than 1%). Some houses are even selling for less than $20,000!
While some of these bargains are in neighborhoods that have traditionally been low income, others are in neighborhoods, such as East Atlanta or south of Decatur, that have been gentrifying for nearly a decade. In other words, there are some amazing steals out there for buyers.
If you are looking to buy a home to live in, and you have a stable job and a little money to put down, you can buy a great house. Unless you have 5 to 10 percent to put down, an FHA loan is probably the best way to go. With the current interest rates, which are phenomenally low, you can very likely purchase a home with a 30-year fixed-term loan and pay a mortgage for the same amount you are currently paying in monthly rent. To qualify for FHA you must have a credit score of 580 or better and have 3.5% of the sales price to put down. Even better, the 3.5% down payment can be a gift from a relative, church or other non-profit institution. You must also be prepared to pay for closing costs and escrow funds, which your lender will explain to you in detail. Many times your agent can help you negotiate for the Seller to pay all or part of these closing costs. Sometimes, too, the lender will allow you to finance these expenses by rolling them into the loan.
At all price points, it is important that you speak with a lender before beginning your search for a new home so that you know how much money you will be able to borrow and what kind of funds you will need to have on hand to seal the deal. This information will determine what price range you can consider.
Houses selling for $100,000 or less may also be of interest to people looking to buy rental properties or houses to renovate and resell. When subprime mortgages hit the marketplace, it made little sense for people to rent when they could so easily qualify for a mortgage, therefore the market for renters declined. Now, with the requirements for getting a loan becoming stricter, the market should start improving for rentals, especially those in desirable areas.
However, the rules for financing investment properties have also gotten more stringent. Lenders will not allow an individual to finance more than four properties at one time, including the home they occupy. Also, most lenders require a minimum of 20 percent down to purchase an investment property. Lenders are also requiring that you have liquid cash reserves for the equivalent of six months of total payments, as well as a credit score over 700, to get a loan for an investment property. These rules apply for investment loans of all sizes up to $417,000. (More on that later.)
Whether buying in this price category to live in the house or to build your investment portfolio, you should move quickly. These houses are selling fast.
Houses selling for $100,000 to $250,000
Traditionally most houses selling in metro Atlanta fall into this price range. In 2007, for example, 54% of all houses sold were at this price point versus 48% in 2008. While there are more houses this year selling for under $100,000 than last year, these statistics verify that home prices haven’t eroded as badly as many assume or as the media likes to suggest.
For those who qualify to buy a home in this price range, there are many loan options. Just some to consider include:
- FHA 30-year fixed
- Conventional 30-year fixed
- Adjustable rate mortgages with a 5- or 7-year fixed period
- 15-year terms at rates below 5.00%
What does this mean in real life? Suppose you want to purchase a house for $200,000. If you put down 5 percent ($10,000), you will be financing $190,000. The monthly note for the principal and interest on that loan will be $1,019.76 at an annual interest rate of 5 percent. The mortgage company will also want to collect money toward property taxes and insurance each month. Depending on how much the taxes are where you live, your total monthly note might be in the range of $1,250 to $1,400. Again, your lender can help you crunch the actual numbers based on interest rates and property taxes and insurance for a specific location. The time to act is now, while interest rates are so low. In this same scenario, if the rates go back up to 6%, you will be adding about $120 to your monthly payment.
Houses selling for $250,000 to $346,250
As of this writing, the maximum loan you can obtain through FHA is $346,250 (less in certain zip codes). That limit may go down in 2009, but it is still adequate to buy a comfortable home in a nice neighborhood. Just some examples of what you could buy at this price: a three- to four-bedroom renovated ranch near Emory/CDC; a newly constructed Craftsman-style three bedroom/two-and-a-half bath home in such gentrifying intown neighborhoods as East Atlanta or Edgewood; a veritable mansion in such suburbs as Lilburn or Alpharetta; a fixer upper in Candler Park; a loft in Midtown or Virginia Highlands with fabulous views of the city. All of this is possible with just 3.5% down on an FHA loan.
Of course there are other considerations when seeking a mortgage in this price range. It is very important to consider your other monthly debt obligations and your cash reserves for emergencies. FHA requires that your total debt ratio (i.e., total monthly debts divided by your gross income) not exceed 41%. While FHA does not require you to have more than two months of payments in savings, it is wise to have a six-month cushion, especially in this economy. Another consideration regarding the kind of mortgage you obtain relates to your long-term goals for the property. For example, you may opt for an adjustable-rate mortgage with a lower interest rate instead of a 30- or 15-year fixed-rate mortgage if you are planning to renovate the home and sell it in two to five years.
A good mortgage planner should sit down with you to discuss the pros and cons of home ownership and all the things you need to consider when making a decision to purchase a new home.
Houses selling for $350,000 to $417,000
Not too long ago it was a challenge at this price point to buy a three-bedroom/two-bath house in desirable intown neighborhoods with strong public schools. You could get close if you were willing to tolerate the neighborhoods still in the process of gentrifying, but you could rarely find updated homes in such neighborhoods as inside the Decatur city limits, Candler Park/Lake Claire or Virginia Highlands/Morningside, to name just a few. Well now you can. While you can certainly still find many higher-end homes in these neighborhoods, there are now some perfectly comfortable homes, perhaps needing just a little bit of sprucing up, available at lower prices.
The other good news for buyers is that you can get conventional mortgages with great rates for loans up to $417,000. After that amount, you go to a jumbo loan for any amount borrowed over $417,000.
Houses selling for over $417,000
There are still plenty of homes in metro Atlanta selling in this price category. In terms of the actual number of sales, however, there was a 32% decrease from 2007 to 2008. Most of these houses on the market today list between $417,001 and $800,000, numbering just over 7,000 homes. As the price tag increases from there, the number of actual number of sales begins to decline more sharply than in recent years.
When buying homes in this price range, here are some considerations:
How long do you plan to live in the home? How much of a down payment can you afford to make? Most jumbo loans (over $417,000) require a minimum of 20% down in order to receive a decent interest rate. Loans with less than 20% down are currently in the mid-to-high 8% range. Most lenders are requiring a credit score of 700 or higher in order to receive a jumbo loan. They also require at least six months of payments in reserve in a checking or savings account.
The bottom line
No matter the price range, there are fantastic deals galore for homebuyers in Atlanta right now. Lenders are still lending to qualified buyers. And borrowers with good credit and income have many options for financing their new home!
If you have any questions about the real estate or mortgage market, please don’t hesitate to contact us:
Nancy Bent Mercedes Pasqualetti
Associate Broker President of Operations
RE/MAX Metro Atlanta HLM Mortgage Company
c) 404-822-3279 o) 404-836-1120
o) 404-321-3123 c) 404-683-5626
nancybent@remax.net hlmloans@hlmtax.com
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