Residential Real Estate in SW Washington State

Residential Real Estate Services with Passion, Integrity, Knowledge

Questions to Ask a Loan Officer

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Photo thanks to Scott Macleod Liddle via Flicker

From my own practice, I know that Buyers often believe that they have the knowledge to make an informed choice in choose a loan officer or mortgage. Buyers are smart folks — they’ve done their homework; they’ve formed a relationship with their own bank; they feel that they can compare apples-to-apples when shopping for a mortgage.

In addition to comparing rates and costs, however, Buyers need to also ask these important questions of a mortgage professional:

  • Can you really close this purchase?
  • Will you provide the loan documents to escrow 2-3 days ahead of the closing date so that my purchase can close on time?
  • What is the minimum number of days you need to close this on time?
  • Will you call me back within a hour (or so) when I have a question?
  • Will you be in close contact with my Broker/Agent so that she knows what’s going on?
  • Will you explain the numbers to me that I don’t understand?
  • How many new purchase mortgages have you completed in the last year? What types? (i.e., do you have experience with VA loans, FHA, rehab loans, etc)
  • Will you meet or beat the builder’s preferred lender’s rates or current offer?
  • If you’re not a bank, to whom do you anticipate that your company typically sell my mortgage?
  • Will you be my trusted advisor, not just for this purchase, but going forward from here so that I know when it might be wise to consider refinancing? (or whatever)

See, it’s not just about rates and closing costs. It’s about making a wise decision based on the knowledge of your loan officer. I have a short list of trusted mortgage folks with whom I’ve worked for years! It’s a short list, because it’s very hard to find excellent loan officers! Both of these mortgage professionals do what they say, when they say, with the terms they say. They stay in touch with me so I can be of service to you. They stay in touch with you so you know what’s going on. Click here to visit the page that contains the names of these two ladies.

There are only two names on the list at the moment because I’m very picky. These two are consistent, and they’re always there for my clients and for me. I like that … It’s all about trust.

Part II–New Construction In and Around Auburn, WA

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This post was originally published in March of 2012! I’ve recycled the post as there is still significant new construction in and around Auburn, WA, although many of these subdivisions are now completed. However, each of these builders continues to build homes locally and should be considered when buying new construction!

framing10In Part I of this post, I reviewed new construction and communities by DR Horton, Soundbuilt Homes, Schneider Family Homes, and Conner Homes. Because new construction is such a huge part of our south King County and north Pierce County Auburn location, I’ve split my quick overview into two posts.

In addition, you’ll find a few more tips about buying new construction in the post 20 Tips to Buying New Construction.

Premier Homes

hammerI haven’t had a chance to work with any of the Premier Homes folks yet, but wanted to include them in this list as they have a nice community (Northlake) just barely southeast of Lakeland Hills in the Pierce County side of Auburn. At the same location, Lennar Corporation recently acquired the remaining home sites at Northlake and is now building them as Woodland Meadows. I’ve toured a couple of new construction Premier Homes over the last few weeks and they are beautifully finished and a good option for someone shopping in the upper $200’s. A quick drive through the neighborhood last weekend showed lots of activity on the Lennar home sites!

Polygon Homes

hammerPolygon’s home plans have long been some of my very favorites. They’re wonderful folks to work with too! In addition, the Polygon builder team has one of the best home warranties, supporting their homes door-to-door for 3 years (with an optional 2 additional years at the Buyer’s cost), with a total of 10 years for the home structure. Coho Creek in the Covington area (just behind Kentwood High School) has homes available from the mid $200’s up to the low $300’s ranging from about 1,700-2,500 square feet.

Near the south edge of Auburn in Bonney Lake, you’ll find The Estates at Lakeland Hills with slightly larger homes ranging from the higher $200’s up into the mid- $300’s. There aren’t too many of these homesites left, however; The Estates is just about sold-out!

Richmond American

hammerRichmond American recently purchased SDC Homes and appears to be continuing with many of the original SDC home plans and finishes. In addition, Pinnacle Estates is a gorgeous Richmond American community in the Lakeland area of Auburn—BIG beautiful homes with awesome views that sit up high on the east and southern ridge of the area. Note that Richmond American, in my opinion, probably builds some of the biggest homes for the money that I’ve seen, along with their signature art niche’s in the entry halls of most of their homes. Really attractive!

Henley USA (MainVue Homes)

hammerMainVue developments are springing up all over the place. Their newest development on the east hill, Kendall Ridge, is a gorgeous site – incredible views of the Cascade Foothills and Mount Rainier are available from the sites that site on the Ridge. (As an aside, the photo that comprises the banner of my Web site was taken from this development a couple of years ago – when there was just dirt!)

The MainVue floor plans are unique, gorgeous, and truly a breath of fresh air with huge glass doors framing their outdoor rooms (covered patios). Prices are a bit higher than some of the other builders, but with their less common floor plans, appear to be attracting quite a few avid followers. Expect prices to be in the mid $300’s to mid-$400’s at most MainVue communities.

Edgeview

hammerWhen driving anywhere near Lakeland Hills, it would be hard to miss the many bright red signs pointing to the new Edgeview Homes community on the far east side of the area …just off of of Evergreen Way and Kersey Way. Edgeview is built high up a on ridge, and comprises probably a couple hundred home sites, community parks, playgrounds and even an off-leash dog park (yay!!). The largest home plan in the community is just over 2400 square feet, and most of the home sites are somewhat on the smaller side – maybe not important when all of the parks and playgrounds are factored in. Prices range from the low $200’s to mid/upper $200’s.

Covington Pointe

hammerI haven’t had a chance to visit Covington Pointe, but really need to! This is a rare 55+ community, located conveniently near the Multicare Center just off of 180th. The community is gated and features gorgeous one-level homes (no stairs!). I’ve included it here because I haven’t seen any new 55+ communities for quite some time.

Kendall Homes

hammerJust outside of the Auburn area are three communities being built by Kendall Homes. I wanted to include them in this list, however, as I did just assist a buyer in their purchase of a new Kendall Homes house … and it was a great experience! Of note, especially, was the willingness of the folks at Kendall Homes to make some slight modifications for my client. They removed a wall, repositioned a door, modified a shower enclosure, and, outside of the contract, allowed him to purchase his range and have it installed just in time to satisfy the final appraisal and inspection. For communities in the area, visit Mountain View in Maple Valley (just off Witte Road), and 132nd Court and Vermilion.

Quadrant Homes

hammerUnfortunately, there aren’t any Quadrant communities currently being built in Auburn that I can see. I’ve really been a fan of their new Revolution series; an update to their offerings that was long overdue in our area. There are a couple of small Quadrant communities in nearby Kent, along with a few homes here and there in other locations. Be sure to ask about their new homes when you talk with your agent. I think you’ll be impressed!

Part I — New Construction In and Around Auburn WA

Part 1 – New Construction In and Around Auburn WA

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framing9This post was originally published in March of 2012! I’ve recycled the post as there is still significant new construction in and around Auburn, WA, although many of these subdivisions are now completed. However, each of these builders continues to build homes locally and should be considered when buying new construct

Acquiring a new home is thrilling for every Buyer, but new construction, in particular, maintains an exceptionally high level of anticipation, followed by what seem to be endless delays and frustration, and then finally culminating in a near fever-pitch of excitement.

In addition to the shiny new finishes and new house smell, of course, new construction is attractive to many buyers because of builder financing and low down payment incentives, extended warranties, and the desire to decorate a home from the ground up, choosing plans, colors, cabinets, counters, and flooring. Not to mention that a contract written for new construction will close, unlike so many of the short sale listings that are prevalent in our area. There’s a sure thing happening in new construction … less so with distressed property listings.

It can’t be stressed often enough, however — If you have a plan to purchase new construction, whenever possible, visit the sites for the first time with your own broker/agent, who will register you in the community and help you obtain all of the important information. Your agent can then work on your behalf from the very beginning to be of help to you as you buy the home of your dreams.

If you can’t, or don’t, go with your agent the first time around, be sure to let the site representative know that you are working with your own broker/agent and that the agent will contact the site rep ASAP on your behalf. Then get in touch with your agent before visiting the site again and again!

While I haven’t worked from start to finish with each of these builders, I’ve visited a most of these communities, helped Buyers through the new construction process, and had a chance to talk with many of the site representatives. Over the years, I’ve resold many many of their homes as well!

Here’s a brief summary of new construction in the area and in no particular order; click the builder or community name to visit the associated Web site. Because there are SO many new construction options in this south King/north Pierce county area, I’ve split this list into a couple of different posts. Be sure to refer also to Part 2 – New Construction In and Around the Auburn WA Area, and especially 20 Tips to Buying a New Construction Home, also to be posted in the next few days.

One quick addition note – the builders and communities in this list are not custom build sites – all are based on preapproved plans and typically few changes can be made to the plans, although all offer a limited number of upgrades so that the look of the home can be personalized.

DR Horton

hammerOne of the biggest builders in the area is DR Horton. Prolific, that’s for sure! DR Horton tends to build similar plans in almost every community I’ve visited and can be a very good choice especially for first time homebuyers. In my experience, they tend to have great financing incentives packaged with their listings, which can be attractive if you are comfortable working with the DR Horton preferred lender.

There are a couple of DR Horton communities near Auburn – one on Auburn’s west hill (Lakepoint) with prices in the low $200’s, and another huge community in Covington (CornerStone), just past the Highway 18 and Kent Kangley interchange with prices in the higher $200’s to mid $300’s.

Schneider Family Homes

hammerThe folks at Schneider Family Homes are definitely one of my favorite builders for reasonable prices with nice quality finishes. I’ve worked with a buyer in the past who purchased a new Schneider home—it was a wonderful experience and those buyers are still thrilled with their house, and I’ve been involved with resales of several as well. While the folks at Schneider homes tend to build just a few homes at a time in each community, there are typically a few homes available in each neighborhood. You’ll find lovely true hardwood floors, solid granite surfaces and thoughtful designs. Most Schneider homes in the greater Auburn area tend to be priced in the low-mid $300’s, from about 2,200 square feet and above.

Soundbuilt Homes

hammerSoundbuilt Homes is another busy busy builder in the area with three Auburn communities currently under construction. Their basic price point is really attractive to many buyers, offering generous size for the $$.

Brandon Meadows may be their newest community – located on 312th just past the 132nd and 312th junction. Similar to the newest MainVue community almost across the street on 312th/132nd, this community’s property was cleared several years ago just before the housing decline in 2009 in our area. From the Brandon Meadows Web site, it looks as though pricing will be from the mid $200’s up into the low $300’s.

Two additional sites for Soundbuilt in Auburn are the small Sterling Court, located at about 304th and 121st with similar pricing, and Terrace View, a townhouse community located in Lakeland Hills.

Conner Homes

hammerConner Homes is a local builder with some delightful home plans and a couple of communities in the Auburn area. They tend to build about 20 houses at a time in each community, which means each build gets personal attention and the communities are not quite as “rapid fire” as some others. I like their finishes and floor plans a lot!

Monterey Park in the Auburn valley (just behind one of the Carpinito Brother farms) has both single family and duplex style homes ranging from about $175k to the high $200’s.

Lakeland East in the Lakeland Hills area of Auburn features homes from about 1,300-3,300 square feet (quite a spread!) fitting in to almost every buyer’s pocketbook.

Think Housing Prices Are Too High?

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I have a client that loves to send me little jokes and ditties every now and then. He’s just slightly older than I am and loves to pontificate about how prices are outrageous and how he can’t imagine how people can afford to live any more.

In some respects, of course, he’s absolutely right. But in others, it’s amazing how little prices have gone up.

Today he sent me a list of a few things and their prices in 1955. Of note, of course, are prices like gasoline – 23 cents a gallon; milk – 85 cents a gallon; eggs – 61 cents a dozen.

A bit of checking around and I see this list, thanks to www.fiftiesweb.com: 

House: $22,000
Average income: $4,137
Ford car: $1606-$2944
Milk: $.92
Gas: $.23
Bread $.18
Postage stamp: $.03
Sirloin chops: $ .69 lb.
Pot Roast: $.43 lb.
Eggs, doz.: $.61
Coffee: $.93 lb.
Milk, ½ gal. $.43
Potatoes, 10 lb. bag: $.53
Starkist Tuna, 6 ½ oz. can: $.25 lb.
Oreo cookies, 11¾ .oz pkg: $.39
Potato Salad, pint: $.29
Cracker Jack, 24 pac: $1.49
Apple cider,½ gal.: $.49
Gum Drops, 1½ lb. pkg: $.29
Ivory Soap, 2 bars: $.29
Mickey Mouse lunchbox: $.88
Slinky: $.88
Nylons, pair: $1.00
Home permanent: $1.50
Baseball Glove: $9.95

 

As I reviewed this list, I’m thinking … wow, some of these haven’t gone up much at all. I mean, last week’s ad for potatoes was something like $1.48 for a ten pound bag (about 3 times more than 1955); milk – $2.59 a gallon (oof, that’s a big price increase: about 6 times, although I’m pretty sure I see milk for $1.99 a gallon now and then) eggs were something like $1.50 a dozen or so (can’t find an ad anywhere) – up about 2.5 times.

gas prices

 

Gas in my area (just south of Seattle) is right around $3.30 a gallon – up 14.3 times (that’s a gotcha!)

 

Anyway, then I decided to look at the price of housing. According to this chart, the price of a home in 1955 was about 5.3 times the average income.

Hmmmmmmmmmmm

key with dollar signLooking at local statistics, Washington state reports that the 2011 median income for King County (basically the greater Seattle area) is projected to be $66,294. Median house price for sold homes in King County right now? The Northwest Multiple Listing Service (NWMLS) says: $343,700 as of end of November. 5.18 times the median income. Pretty close to 1955.

Now, 1955 is just slightly before my memory (I was two in 1955) … I have memories of some of these though! I wonder what my grandchildren born in 2010 will think when looking back at prices when they’re 55.

Enough analysis this time of the morning!

Buy a House With Less Than 20% Down Payment

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Buy a House With Less Than 20% Down Payment
Avoiding Mortgage Insurance — You Don’t Need 20% Down Payment

It is possible to buy a house with less than a 20% down payment.

One of the most frequent and often biggest hurdles when assisting potential home buyers is their lack of a 20% down payment, combined with their desire or need to keep their payment as low as possible. Typically their credit scores are pretty good, say mid 700’s or so, and they otherwise qualify nicely for a mortgage. They come to me wanting to buy a house, but thinking it’s not at all possible because they believe their only choice is to buy with using a low down payment FHA loan and then pay the staggering and never-ending mortgage insurance.

Over the past several months, the loan officer with whom I work most frequently has suggested to some of my clients that they consider using lender-paid private mortgage insurance rather than trying to save an additional 10% or even 15% in order to buy with a 20% down payment. The lender-paid option bumps their interest rate up an eighth or quarter of a percent, but still brings their monthly payment in less than it would be were they to pay mortgage insurance each month. That means they can shop for a bit more house and still keep their monthly payments at goal!

There are a number of calculators available that can help you determine whether it makes sense to use the lender-paid mortgage insurance option. For example, FHA.com includes a very helpful calculator that includes a mortgage insurance payment. Here’s a typical scenario in my area:

  • House price: $200,000
  • Property taxes: about $2,600 a year, which is 1.3% of the price or approximately $216 a month
  • Homeowner’s Insurance: about $600 a year, or $50 a month
  • Typical minimum 3.5% down payment
  • With good credit of say mid-700’s, interest rate might in in the neighborhood of say, 4% or so (or maybe lower … or maybe higher depending on the day)

Anyway … plug all of that in to the FHA calculator and you’ll see a monthly payment of approximately $1,400 a month.

Now assume lender-paid private mortgage insurance. Using my favorite loan officer’s calculator with the same approximate scenario, an interest rate of maybe 4.25% and down payment of, say, 5%, this brings the payment to just over $1,200 a month! Higher interest rate, lower payment.

Remember that I’m using a very rough scenario here and that there are certainly other factors to consider … but it’s important to remember that there ARE options and you can buy with less down payment than you think. It is possible to buy a house with less than a 20% down payment.

(By the way, in my area there are also programs that can assist you should you not have sufficient down payment … but that’s a subject for another blog post.)

Here’s the disclaimer: I’m not a loan officer, I’m a Realtor®. You absolutely need to talk to a lender to get the real numbers. I love my loan officer, Amanda Finnegan, especially since she’s honest, accessible, well qualified, and her bank (HomeStreet Bank), typically doesn’t sell their loans.

(Amanda’s temporarily out on maternity leave, but’ll be back in early December … contact her anyway, or contact me.)

 

How Much House Can You Afford?

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Like most agents, I talk almost daily with folks considering a home purchase. We talk through all of their wants and picture their dream house in vivid color.

Within a very few minutes, however, I start asking the tough questions:

  • “How much can you afford?”
  • “Have you been preapproved?”
  • “With whom?”
  • “May I refer a few lenders to you that do outstanding work–they’ll help us nail down exactly how much house you can buy, and get you preapproved for a loan so you’re ready to go!”

… and so on.

These questions aren’t designed to be intrusive … they’re merely a way of helping me understand exactly where a Buyer really is in their purchase decision, to help them determine their balance point between their desired lifestyle and their desire to purchase a home … And, of course, to help them understand that this first step — the money side — is SO important!

Now, generally, my very first question is answered by: “I want my payment to be no more than $, although I could possibly stretch up to $.”

I’m not a mortgage officer, but it’s certainly part of my initial counseling session to help Buyers get started and to help them assess the balance point between their desired lifestyle and your desire to purchase a home. The question of “how much can you afford?” is just the first step. While providing them with a general feel for what they’ve described, I’ve also assembled a few tools that empower the Buyer to do a little research on their own.

With thanks to the folks at MortgageLoan.com, included on this site is a useful set of calculators to assist you in determining what your payments might be with various sorts of loans.

In addition, I’ve developed a handy little Excel-based FHA calculator that I’ll be happy to send to you–just give me a call (206.300.8421) or shoot me an e-mail message and I’ll get it right out to you.

From a Realtor(r) — Online Mortgage Broker vs. Local Loan Officers

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From a Realtor(r) — Quicken Loans (online) vs. Local Loan Officers

In a recent press release, JD Powers ranked Quicken Loans as #1 with regard to customer satisfaction for home loan purchase and refinance origination. I wonder how they’d rank locally or if this is a national statistic?

Online handshakeWhile we increasingly become an online population with little or no face-to-face  communication, I’m not sure I agree that using online mortgage brokers vs. local loan officers is the best method of completing a home purchase. In all fairness, however, I haven’t had an opportunity of working with Quicken Loans with any buyer. I can tell you that clients of mine have worked with several of the other companies in the JD Powers rating list…and with mixed satisfaction. 

From my perspective, once financial qualification is determined, the most critical part of completing a mortgage loan is communication between all parties involved, not just the borrower and their loan company.

Working successfully through a transaction requires that a real estate broker also be kept informed. We’re out here trying to coordinate things from our side and knowing timelines and milestones on the loan side is critical. After all, we need to meet those deadlines as well.

Local Loan OfficerI always want to be sure to know exactly who to talk to (not just a voice in a department), but a real person that follows a mortgage application from start to finish. That said here’s a list of highly successful mortgage representatives with whom I work continually. They do what they say they will do, they know their loan products and they are masters at communication! I know, without a doubt, that they’d rank right up there with Quicken Loans, if not higher.

By the way, I’m all for making applications online, using email, texts, whatever. I regularly share info electronically and I absolutely love the convenience and security of using digital signatures. I just think it’s critical to have a single person with whom you’ve met and talked handle your transaction from start to finish. And be there later when you have questions or want to refinance. Your talented and qualified mortgage officer should be part of your suite of regularly used professionals, along with your real estate broker. We’re here for the long term, not just a single transaction.

Other articles you may find useful:

Questions to Ask a Loan Officer

 Mortgage Approval for Buyers “and” Sellers

 

10 Tips to Buying an REO Listing

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houseboarded10 Tips to Buying an REO Listing for first-time homebuyers

Working with first time homebuyers makes bank-owned (referred to as REO … Real Estate Owned) properties seem like an attractive purchase opportunity. These properties on which foreclosure has been completed are now owned by banks (think Wells Fargo, Chase, Bank of America, etc.), HUD, VA or government backed investors (GSEs) such as Fannie Mae or Freddie Mac. They’re attractive to homebuyers because transactions involving such properties typically close fast, unlike short sales that can drag on for months.

Some REO properties have had some “fixing up” completed — the grounds have often been cleaned up, sometimes critical missing appliances like the range have been replaced, carpets have been cleaned, and rooms and exteriors painted.

Other properties, however, require fixing and updating, meaning buyers must have funds to present all cash offers or financing with significant down payments. These properties, in particular, are attractive to investors who are looking for investment properties they can fix up and re-sell (flip) or rent.

In addition, often REO properties are priced aggressively, meaning they’re subject to multiple offers.

First time homebuyers, however, often come to the purchase table with a financing goal of asking for closing cost contributions from a seller while using a rehab loan to complete the purchase. That can be tough when buying an REO listing.

What’s a first time homebuyer to do? They often don’t have deep enough pockets to be tremendously aggressive in pricing offers, nor do the REO folks (the Seller) like to wait the additional 2-3 weeks needed to close a transaction where the buyer will use a rehab loan.

Here are 10 Tips to Buying an REO Listing:

  1. Absolutely be preapproved before writing an offer. You  need to know what you qualify for and you’ll need to prove it to the Seller.
  2. Shop below your top financing approval number.  Understand that you may be involved in a multiple offer situation. You may need to offer MORE than the list price in order to “win” the purchase.
  3. Cash is king. Use your available cash to increase your down payment, thus perhaps enabling you to use conventional financing rather than an FHA or VA loan. If you have a 20% down payment,      conventional loans won’t require mortgage insurance, which can save you a couple hundred dollars a month.
  4. Check with your lender to see if you can include your closing costs inside your purchase loan. Sometimes it can be done, although it may increase your interest rate slightly.
  5. Understand and be prepared to try for several homes and lose several before you’re the accepted offer in a transaction. It’s a learning process and the more houses you see and tries you make will enable you to move more quickly each time you see a desirable house.
  6. Experience counts: Work with a lender and an agent that both thoroughly understand and have experience with Rehab loans and purchases. You’ll need every advantage in order to close quickly.
    1. An experienced agent can eyeball a house and know whether or not it will qualify for standard financing or whether a Rehab loan will be required.
    2. An experienced lender should be able to close a streamline FHA rehab purchase within a 45-day window.
  7. REO properties often have a window or so where only owner-occupant offers will be considered. You need to present your best offer right away, and then be prepared (if multiple offers are received) to present your “highest and best” offer again.
  8. Move quickly. If an intriguing property is listed, you need to see it as soon as possible. Some REO properties receive multiple offers within hours.
  9. Remember that the holder of an REO property is looking at a combination of the NET number (your purchase price less any concessions you’ve asked for), a quick closing, and their assessment of      whether you qualify for the purchase.
  10. Finally, be sure your agent has evaluated the pricing structures commonly used by the various Sellers. For example, Fannie Mae tends to price homes a bit higher at first, and then reduce prices slightly if no offers are quickly forthcoming. However, Chase aggressively prices properties, gathers multiple offers, and ultimately closes sales for more than list price.

Auburn, Kent, Algona & Pacific REO sales 2/7/2013-4/8/2013

King County Downpayment Assistance

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King County Downpayment Assistance

couple looking at house to buyWashington State’s Housing Finance Commission announced today that their House Key Plus ARCH downpayment assistance program has just received limited funding for borrowers purchasing in the Eastside Cities of King County, including areas extending from Bothell through about Issaquah.

This payment deferred program provides up to $30,000 in downpayment funds (depending on qualifications) for households earning 80% or less of the King County area median income. There are property purchase price limits involved and the buyer must still have about 2% of the purchase price (some gift funds can be used) to also contribute to the downpayment. There are also additional requirements relating to the property itself, whether the home is currently tenant occupied, and so on.

Documentation from House Key indicates that this time around funds are loaned at a 4% simple interest, with payment deferred until the time of resale of the property, when the property is refinanced, transferred to another owner, ceases to be the borrower’s primary residence, or at 30 years.

Additional information is available about the King County Downpayment Assistance program or through a Washington State Housing Finance Commission/House Key trained lender. In addition, because there are specific requirements for the home itself, you’ll also want to be sure to work with a House Key trained real estate broker.

From experience, I know that the amount of funds available go fast! If this is a program you feel might be beneficial to you, or if you have questions about the King County Downpayment Assistance program, please don’t hesitate to contact me.

 

Okay, Should You Sell … and Buy in 2012?

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sitting on fence-flicker by michaelkuhn_picsLike many, you may have been sitting impatiently on the fence for the last three years hoping for a miracle that would allow you to sell your existing home without sacrificing too much more equity … and buy at today’s price and interest rate.

At least once a week I get a call from a previous client or someone “just checking out the market,” wanting to do exactly that. And, who absolutely wouldn’t want to buy a house with the bargains out there??!!

Let me try to help you make a bit of sense out of this type of scenario.

The latest statistics from the Office of Federal Housing Economic Oversight (OFHEO) and Federal Housing Finance Agency (FHFA) indicate that home prices in Washington State, overall, lost approximately 8.67% from the end of 3rd quarter 2010 through 3rd quarter 2011, but gained 111.07% for the 20 year period ending 3rd quarter 2011. Okay .. math … 111.07% divided by 20 years = 5.55% a year appreciation!

Now, assuming that housing prices are getting to the bottom end of their free-fall, let’s also assume that housing prices will continue to appreciate overall at a safe rate of about 5% a year for the next 20 years. There’s still going to be some skidding when reviewed on the short term, but remember that real estate is a long term investment — 10-20 years.

Continuing with assumptions, let’s presume that housing prices in Washington State might fall another 7-8% over 2012 (I think that sounds like a bit much, but my crystal ball is a bit cloudy, so who knows? Note, that The Housing Predictor anticipates an approximate drop in the Seattle area of about 5.1%.)

So … your current house valued today at, say $250,000, might be worth approximately $230,000 or maybe $235,000 by year end. Yikes … another nosebleed of $15,000-$20,000. Perhaps you owe approximately $150,000-$200,000 … and you’re paying around 6% in interest on your mortgage. (Quick math … $200k at 6% = principal & interest payment is approximately $1,200 a month – but you’re paying more than that because you haven’t refinanced since 2008 and your house was worth more and your loan was bigger. I’m guessing you’re probably paying around $1,600 a month principal and interest.)

You want a bigger house, different neighborhood, lower interest rates. And you can buy that for, say, $275,000-$300,000 at today’s prices. At the end of the year (assuming you wait until next December), those houses might be priced at $255,000-$280,000.

Let’s look at what that means to your pocketbook by comparing interest rates.

Right now, rates are sitting right around 4%. They move around a bit … but let’s say 4% just for talking sake.

Analysts have been surprised that rates have stayed as low as they are, so let’s presume they go back up to 5%. If you buy in January rather than waiting until next December, your purchase might look like this:

 

   

Today’s Price

  

Price at End of 2012

Purchase Price

  

$275,000

-7%

$255,000

Down Payment

20%

($55,000)

20%

($51,000)

Amount Financed

  

$220,000

  

$204,000

Principal & Interest Payment

4%

$1,050.30

5%

$1,095.12

Interesting … buying now at a higher price still saves about $45 a month over waiting until year end and paying a bit more in interest.

Now, let’s look back at that historical trend for appreciation. Conservatively, let’s say that  house gains in value 5% a year overall for 20 years.

Therefore, if you buy a house today at $275,000, twenty years from now at 5% a year (hmmmm, 100% increase), historically, that house could be worth approximately $550,000. Plan to keep the house 10 years? How about approximately $412,500?

Should you sell … and buy new in 2012?  “I” think so; personally I expect prices to start to rise in 2013. But, of course it has to make sense to you. If you plan to buy a home and believe you’ll be able to stay in it for 10 years or more, then absolutely.

If your overall payment on a replacement home is within your budget, you have the funds to close the sale of your old home and a new one, then let’s get going while rates are amazing and prices are too!

*man on fence graphic thanks to Flickr, Michael Kuhn