How Much Down Payment do you Really Need to Buy a House?
Santa Ana College, Community Services Program
Saving for a down payment is an important step in becoming financially prepared for homeownership, and there are options and opportunities for financing a home purchase that will allow the borrower to come with little or No Down Payment. For most first-time home buyers, coming up with funds for a down payment is the biggest obstacle to homeownership.
In the mortgage industry, 20% down is considered the benchmark down payment for looking strong on paper as a home buyer. How strong you are on paper will determine how you could obtain a loan.
However, this being a general standard for financial strength does not mean a requirement to get a loan. Reality is that there are home loans that can be obtain with $0 Down Payment if you are eligible.
1. FHA loans will allow you to apply for as low as a 3.5% down payment up to the maximum conforming loan limit in the county in which the property is located. Most lenders can lend up to $417,000 under FHA guidelines.
2. Conventional 5% Down Payment is another option for first time homebuyers. This is an excellent alternative to the higher-priced FHA loan Mortgage Insurance that allows to get rid of PMI after accumulating 20% equity after a minimum of 24 months.
3. $0. – Down Payment: there are 2 options that are available if you are eligible:
1. VA loans allow 100% financing all the way through the maximum conforming loan limit in the county in which the property is located. Veteran’s Affairs mortgage loans are available to veterans, current members of the military and their spouses.
2. USDA Loans allow 100% financing through the Rural Development United States Department of Agriculture. Property must be located within an area designated to be eligible for 100% financing.
There are also 10% down payment and 15% down payment loans. All 3 of these types of loans involve PMI. As time goes on, the push will be for a minimum 20% down payment. Remember with 20% down, there is no PMI. Conventional wisdom says you should put down as much as you feel comfortable putting down to buy a home. Generally, more is better than less. But don’t wipe out your savings account to do it. You will still need to have funds set aside for a rainy day and for things to buy after buying a home.
Jumbos loans are loans that usually can go as high as $750,000 with as little as 10% down.
However keep in mind that if you’re putting less than 20% down payment on a home, your monthly property taxes and fire insurance terms are most likely to be built into your monthly mortgage payment, and you’ll maybe have to pay for private mortgage insurance, as well.
Ultimately, the minimum down payment required will depend on the type of loan that you choose. Each mortgage loan type carries its own guidelines, and today underwriters closely scrutinize a borrower’s ability to repay the loan before giving you a loan.
Economic Update for the week ending July 25, 2014
Home mortgage interest rates were unchanged this week at the lowest levels in over one year. Freddie Mac reported that the national average for a 30 year fixed rate was 4.13%, the same as last week. One year ago the rate was 3.31% and on January 1, 2014 it was 4.52%. The 15 year rate was 3.26%, about the same as last week’s 3.23%. It is down from 3.39% one year ago and 3.55% on January 1. The 5 year ARM was at 2.99%, down from 3.16% one year ago and 3.05 on January 1. The one year ARM was 2.39%, also down from 2.65% one year ago and 2.59% January 1. Jumbo rates are very similar with the 30 year rate around 4.25%
The Commerce Department reported that new home sales in the U.S. dropped 8.1%, to a seasonally adjusted annual rate of 406,000 units, in June after 2 month of solid gains. Western states saw the lowest decline of just 2%. Economists did expect to see a decline after a large jump in May, but not 8.1%. Low inventory levels were to blame. Another aspect of the report focused on new housing far from cities as land for development is often “poorly located” and buyers often choose an existing home in a better location, according to the report.
Weekly jobless claims plunged last week to 284,000, an 8 year low. According to the Labor department this is a fresh sign that the recent labor market is recovering. This big drop beat expectations. It marked the fewest claims since February 2006.
The National Association of Realtors reported that sales of previous owned homes hit their highest level since October. There were 5.05 million homes sold in the U.S. in June, on a seasonally adjusted, annual basis. It was the most since October, but 2.3% lower than last June. One difference was the number of foreclosed homes sold. If you take out the foreclosed home sales, sales were up.
Inventory levels are at their highest levels in over a year. The supply of homes has climbed 10% in the last year. There is currently a 5.5 month supply of homes on the market, just shy of a 6 month healthy target, according to NAR.
The Labor Department reported that the consumer price index rose just 0.3% in June, less than the seasonally adjusted increase of 0.4% in May. In the 12 months ending in June, prices were up 2.1% for the one year period. Gas prices jumped 3.3% in June as global tensions drove up prices. That increase accounted for 2/3 of the overall increase last month.
Zillow Inc. appears to be purchasing Trulia. These are the nation’s two largest real estate websites.
The Dow dropped 123.23 points on Friday to close the week at 16,960.57. It was down -0.816% from last weeks close of 17,100.18. The Nasdaq closed at 4449.56, up 0.39% from last weeks close of 4432.15. The S&P 500 closed at 1978.34, up 0.006% from last weeks close. The markets surged earlier in the week with the DOW closing at 17,113.54 Tuesday on higher than expected second quarter corporate profits. Investors got bad news on Friday about the American shopper when Amizon.com and Visa Inc. said that the second half of the year was not looking as robust as originally expected. Visa stock dropped 3.6% on Friday.
Applications for U.S. home mortgages rose last week as both purchase and refinancing applications picked up, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 2.4 percent in the week ended July 18. The MBA’s seasonally adjusted index of refinancing applications climbed 4.1 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, rose 0.3 percent.
As inventory has begun to increase we are seeing more choices for buyers. This is a relief when showing property, and a relief for buyers. We are seeing more price reductions, which is difficult for sellers. The market is definitely changing to a more normal market. Many of you are complaining that prices are falling. I don’t believe that prices are actually falling. I think that some sellers just got lucky in the last few months and sold homes for more that they should have as buyers got caught up in the heat of the market. Home prices are still far higher than one year ago, yet less than the very highest sales two or three months ago. We are even seeing appraisals come in higher than the current sales prices. New homes and totally remodeled homes are still in short supply and we are still seeing those homes selling for record prices. If your home or your listing is not selling it is definitely time to reduce the price. I do believe that prices will rise again next spring, but at a much more moderate pace.
Have a great weekend!
Interest rates have dropped over the last couple of weeks. The Freddie Mac Weekly Primary Mortgage Market Survey showed that the 30-year-fixed rate dropped to 4.23% from 4.32% last week. The 15-year-fixed fell to 3.33% from last week’s 3.40%. A year ago the 30-year fixed was at 3.53% and the 15-year was at 2.77%. Obviously, most loans needed in our markets are over the conforming limit ($417,000). Those rates are about 1/2% higher.
The unemployment rate nationwide dropped from 6.7% to 6.6%, the lowest rate seen since October 2008. There were 113,000 jobs created in January which was an increase from December’s revised 75,000 number but lower than the 185,000 economists were predicting. Some speculate that continued extreme weather across the country is slowing the rate of job creation however there were strong gains in the construction sector which accounted for the highest numbers. looks like the construction we are seeing all over town is reflected in the numbers! there were declines in retail, utilities, government, and education and health employment numbers. Unusually cold weather played a part in the number being lower than expected as much of the country faced record cold temperatures. The participation rate was up slightly to 63.0% from 62.8%. It is thought that more people are feeling that a jobs are becoming easier to find and are entering the workforce.
The Fed has a 6.5% threshold for considering short term rate increases in addition to the taper of the bond and mortgage buying program already underway. It is anticipated that the Fed will wait until the taper is further along before considering rate increases especially if inflation remains In check. In the past they have said that they will keep short term rates near 0% until 2015. The next Fed policy planning meeting is set for mid March. The new Chairman of the Federal Reserve, Janet Yellen, took over for Ben Bernanki this week. She is the first woman to chair the Fed and is expected to continue with low rates for now.
This week the stock market ended on a high note with a two-day rally that helped ease some of the market’s recent losses. Investors did not react negatively to the jobs report, focusing instead on the lowering of the overall unemployment rate and the slight rise in the participation rate. The Dow closed out the week at 15,698.85 up 0.61% from last week’s close of 15,698.85. The Nasdaq was also up, ending the week at 4,125.86 up 0.54% from last week’s 4,103.88 close. The S&P 500 ended the week at 1797.02, up 0.81% from last week’s 1,782.59 close.
The 10-year Treasury note yield rate rose slightly to 2.71% after ending last week at 2.67%. It was 1.99% a year ago.
The Commerce Department reported that U.S. construction spending increased 0.1% in December to a seasonally adjusted annual rate of $930.5 billion. This was down from a revised 0.8% increase in November. The December increase was driven by a 2.6% rise in private residential construction, which hit an annual pace of $352.6 billion, highest since June 2008. Spending on single-family homes was up 3.4% in December and up 21.6% from a year earlier. Construction of apartments and condominiums was up 0.5% in December and up 27.3% from December 2012.
The December report from CoreLogic said that home prices slipped were down -0.1% from November to December, the third straight month-to-month drop after eight straight months of rising prices. For all of 2013, prices rose 11% the highest rate of annual increase since 2005. CoreLogic’s price figures are not adjusted for seasonality.
We are seeing the Real Estate market coming into “high gear” after a seasonal year end slowing. Once again we are seeing major price increases in all areas and all price ranges in our marketplace. Low inventory, multiple offers, and rising prices has 2014 shaping up to be similar to 2013!
Have a wonderful weekend!
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Economic update for week ending 2-24-2014
Stocks took a substantial slide this week as the Dow closed the week under the 16,000 mark with both the Dow and S&P 500 taking their worst weekly losses in over a year. There was a substantial selloff on Thursday as investors digested weak Chinese economic data and dealt with currency drops in emerging markets. Some economists are saying that this may be the beginning of a correction in the stock market after last year’s meteoric rise. The Dow closed out the week at 15,879.11 down -3.52% from last week’s close of 16,458.56. The Nasdaq closed at 4,128.17 down -1.65% from last week’s 4,197.58 close. The S&P 500 finished the week at 1,790.29 down –2.63% from last week’s 1,838.70 close.
Interest rates dropped this week awaiting the next meeting of the Fed later this month. The Freddie Mac Weekly Primary Mortgage Market Survey showed that the 30-year-fixed rate dropped to 4.39% from 4.41% last week. The 15-year-fixed fell to 3.44% from last week’s 3.45%. A year ago the 30-year fixed was at 3.42% and the 15-year was at 2.71%. Loans over $417,000 are about 1/2% higher in rate.
The 10-year Treasury note yield rate continues to fall this week ending at 2.75%, after last week’s 2.84% close. It was 1.88% a year ago, but reached 3% in December.
The National Association of Realtors® reported that existing home sales were up 1.0% in December increasing to a seasonally adjusted annual rate of 4.87 million in December from a downwardly revised 4.82 million in November. This is – 0.6% below the 4.90 million-unit level in December 2012. For all of 2013, there were 5.09 million sales, which is 9.1% higher than 2012. It was the strongest performance since 2006. The national median existing-home price for all of 2013 was $197,100, 11.5% above the 2012 median of $176,800, and was the strongest gain since 2005 when it rose 12.4%. The median existing-home price for all housing types in December was $198,000, up 9.9% from December 2012. Distressed homes represented 14% of December sales; they were 24% in December 2012. Total housing inventory at the end of December fell 9.3% to 1.86 million existing homes available for sale, which represents a 4.6-month supply at the current sales pace, down from 5.1 months in November. I use these numbers to point out that the dramatic price increase we have seen has been similar though out many areas nationally.
Realtor.com® released its final National Housing Trend Report for 2013 which showed that the median list price for December 2013 was 8.1% above December 2012, the median age of inventory was down by -5.1% and the number of units for sale was essentially unchanged. The total inventory of homes for sale in the United States declined from 1,846,155 units in November to 1,731,017 units in December, while month-over-month inventory rose from 101 to 112 days, and the median list price declined from $197,700 to $194,500. The median price for the Los Angeles-Long Beach MSA rose 28.5% for the year, up to $455,000 while the amount of listings fell by -9.75% to 19,633 and the median age of inventory fell for the year by 12.33% to 64.
DataQuick announced that California foreclosure activity hit an eight-year low in the fourth quarter of 2013 with a total of 18,120 default notices filed on houses and condominiums from October through December, down -10.8% from 20,314 in the previous quarter and down a whopping -52.6%from 38,212 from the same period of 2012. This marks the lowest number of default notices since 15,337 were filed in the fourth quarter of 2005.
The Pending Homes Sales Index for December from the California Association of Realtors® showed that pending sales dropped -25.2% in December to reach 68.8 down from a revised index of 92 in November, based on signed contracts. Pending sales were down 16.8% from the revised 82.8 index recorded in December 2012. The share of equity sales in December dipped to 84.3%, down from 86.4% in November. Equity sales made up 63.4% of sales in December 2012. The share of distressed sales to total sales in Los Angeles County was 18% in December 2013. It was 14% in November and 35% in December 2012.
We are seeing activity begin to increase dramatically. Over the last week our open escrow count has began to increase rapidly. We are also seeing what appears to me as another surge in prices. This is not unusual. It is common for prices to increase steadily from February to June or so and then flatten. I’d expect the same in 2014!
Have a great weekend!!
People, after you’ve read the Economic Forecast I posted today, think about this: I talked to people who refused to buy in 2011 and again in 2012 because they said that the $1 million home was too high. That house is now $1.3 in Hancock Park walking distance to Larchmont! Stop trying to “time” the market. You are only hurting yourselves. Give me your price and “wish list”. I’ll find it and you will not regret buying. You will, however, regret not buying. We are at the bottom of the market. You will see an upswing for at least the next 5-7 years, if not more. Call me!
Economic update for the 2013 year end!
It was a very strong year for both housing prices and the stock market. Stock investors saw their best year since the 1990s. The last day of the year ended on a high note boosted partly by the news that U.S. consumer confidence rose in strongly in December to 78.1 up from 72 in November, according to The Conference Board, better than the 76 figure economists expected. The economy is heading into 2014 with some strong momentum. The U.S. has added an average of nearly 190,000 jobs a month in 2013, the best performance since the recession ended.
The Dow managed to set its 52nd record of the year closing at 16,576.60 for an annual rise of more than 26%.The Nasdaq closed at 4,166.66 up more than 38% over the course of 2013 and experiencing its biggest year since 2009. The S&P500 had its best year since 1997 closing out the year at 1,848.36, an annual rise of 29%, compared to a gain of 13.4% in 2012.
When stocks are up, investments that are perceived to be safer often take a hit. It wasn’t a good year to invest in gold, it was one the worst-performing investments this year, down 29% in 2013, its worst year since 1981.
Interest rates continued to rise as the year ended. The last Freddie Mac Weekly Primary Mortgage Market Survey for the year showed that the 30-year-fixed rate was up to 4.48% from 4.10% last month. The 15-year-fixed rose to 3.52% from last month’s 3.30%. A year ago the 30-year fixed was at 3.35% and the 15-year was at 2.65%. In 2014 we will certainly be seeing interest rates over 5% and higher and that rise should begin to happen relatively soon.
The 10-year Treasury note yield rate has risen strongly in the wake of the Fed’s announcement of the January taper of the bond-buying program closing out the year at 3.04% the highest number seen since July 2011. It was 1.78% at the end of last year.
L.A. County’s unemployment rate dropped to 9.5% in November, its lowest point in five years, down from 9.7% in October and 10.4% a year ago.
The latest S&P/Case-Shiller index shows that home prices in 20 U.S. cities rose year over year by the most in seven years in October, up 13.6% from October 2012 but up just 0.2% from September 2013. This was the biggest 12-month gain since February 2006. The Los-Angeles-area index was up 0.85% for the month of October compared to September and up 22.1% in year over year data. Overall we are seeing prices start to level off with more modest gains but i would expect to see another surge beginning February!
One of the stories that got a lot of coverage at the end of the year was that Zillow reported that U.S. homes gained $1.9 trillion in value this year, the biggest jump since 2005, as the real estate market rebounded from the recession. The overall housing stock value is said to top $25 trillion. Zillow’s numbers show that Los Angeles housing stock alone is worth $2.2 trillion. Zillow also released their Market Health Index showing the overall market Health on a 1-10 scale by measuring 10 different metrics including changes on home values, time on market, foreclosures, delinquencies, and more. Los Angeles was ranked as the third healthiest market with a score of 8.6.
November numbers from DataQuick show that the regional median home price $385,000 has essentially stayed the same since June after a rise in prices at the start of the year. It is predicted that prices will begin to rise again next year at a slower pace. Home sales in November in the six-county Southland area fell -10.4% compared to November 2012 data and were down -14.2%compared to October’s numbers. This is a result of low inventory. November prices were up 0.3% from October and the median home price is 19.9% higher than it was last November (from $321,000 to $385,000). In just LA County sales were down -11.3% over last year and median prices were up 21.3% to $424,500from $350,000 last November.
The California Association of Realtors (C.A.R.) reported lower numbers in November. Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 387,520 units in November, down -3.4% from a revised 401,000 in October and down -12% from a revised 440,250 in November 2012. The November 2013 figure was the lowest since July 2010. The statewide median price of an existing, single-family detached home slipped -1.2% from October’s median price of $427,290 to $422,210 in November. November’s price was 22.2% higher than the revised $345,560 recorded in November 2012. The available supply of existing, single-family detached homes for sale edged up in November to 3.6 months, up from October’s Unsold Inventory Index of 3.4 months still far below six- to seven-month supply is considered typical in a normal market. The median number of days it took to sell a single-family home also increased to 36.7 days in November, up from 33.1 days in October, but was down from 37.5 days in November 2012. For Los Angeles County the median sold price was down by -9.4%in November to $405,260 from $447,130 but was up 20.2% from last November’s $337,080. Sales in Los Angeles County were down -22.2% from October and down -15.3% from November 2012.
Data from the National Association of Realtors indicated that the number of people who bought U.S. existing homes in November declined for the third straight month falling –4.3% to an annual rate of 4.90 million partially due to higher mortgage rates, depleted inventory, and the lingering effects of October’s government shutdown. Sales in November were -1.2% lower than last November/ NAR predicts that the total sales this year will be 5.1 million, the strongest number since 2007. The median sales price of an existing home was $196,300 in November, 9.4% higher than a year ago.
The Federal Housing Finance Agency (FHFA) reported that U.S. home prices rose in October0.5% from September. The seasonally adjusted gain was in line with the prediction from economists. The FHFA reported that prices rose 8.2% year over year. A report from Bloomberg News stated that the FHFA index will rise about 8% this year and 4% next year. The FHFA index measures single-family properties financed with mortgages owned or secured by Fannie Mae and Freddie Mac.
The Commerce Department said sales of new homes fell -2.1% in November to a seasonally-adjusted annual rate of 464,000. In October new-home sales were up 17.6%, the biggest monthly gain in over 20 years and the annual sales pace of 474,000 was the highest since July 2008. An annual pace of 700,000 for new-home sales is considered consistent with a healthy market. Economists are predicting that new-home sales will continue to rise next year. The median price of a new home sold in November rose to $270,900, up 10.6% from a year ago and there were a total of 167,000 new homes on the market at the end of November, a drop of 6.7% from the October inventory.
November data released by realtor.com® showed that November’s median list prices remained unusually strong for the season, showing a 6.9% increase year over year to $197,700, while declining-0.7% month over month. The median age of inventory was 101 days, a -10.6% drop year over year and a 7.5% gain month over month. There were a total of 1,846,155 listings up 0.2% year over year and down -3.1% months over month. “With demand in a much stronger position compared to last year, we anticipate these gains to remain steady into 2014, but with increases expected at a more moderate pace than we have seen in 2013,” said Errol Samuelson, president of realtor.com®. For the Los Angeles MSA realtor.com showed a median price of $455,000 up28.17% from last year and down -1.07% from October. There were 19,633 listings, down -9.75% from last November and -2.37% from October. The median age of inventory was 64 days, far below the national average, it declined -12.33% compared to last November but was up 10.34% compared to October.
Happy new year!
What “dad” always taught me….. KNOW WHAT YOU DO NOT KNOW!