How a property tax bill can affect your ability to qualify for a home purchase...

I am working with several buyers right now...all of them are pre-approved for their mortgage financing with their various lenders of choice. And of course, the loan officers they are working with qualify them for a loan amount and monthly payment based on the buyers' income, assets, and credit score.

There are four elements that make up the monthly mortgage payment - loan principle, loan interest, property taxes, and homeowners insurance. Many buyers do not realize that their loan officer's estimate for annual property taxes is usually based on 1.25% of the purchase price, then divided by 12 months in the year to estimate what amount gets factored into the total estimated monthly payment. Well, let me tell you - depending on where the home you are purchasing is located, the annual property taxes may be much higher than that estimated number. AND depending on the buyer's circumstances and debt-to-income ratio, a higher tax bill could mean you don't qualify for enough to purchase that particular house after all.

What do you mean Erin?? Well, there are several VARIABLE elements that make up the property taxes for a home...not just the standard property tax based on the value of the house - but also things like school bonds, mello roos, local assessments, flood control, etc. These are called "Direct Levies" on a property tax bill.

Let me illustrate this with an example. I am working with a buyer client who wants to purchase a home in a neighborhood that has LOTS of these little variable elements. The house my client wants to purchase is $315,000. So when my client was pre-approved, the loan officer calculated his approval based on annual property taxes estimated at $3,937.50, or $328.13 per month ($315,000 x 1.25%, divided by 12 months) layered into the monthly mortgage payment. OK, that's great. BUT, the reality of this particular property is that in addition to the standard property tax amount, there are several local assessments and Mello Roos. Here is how the tax bill for the house breaks down:

BASE PROPERTY TAX $3,150.00
COSUMNES CSD - DIST. WIDE L & L $318.48
ELK GROVE SCHOOL DIST MR - CFD #1 $200.00
WATER & DRAINAGE STUDIES - SCWA 13 $6.92
POPPY RIDGE CFD NO. 2003-01 $939.64
STREET MAINTENANCE DISTRICT NO. 1 $155.58
STREET LIGHTING MAINT DISTRICT #1 $17.88
POPPY RIDGE SERVICES DISTRICT $173.10

Total - $4,961.60 per year, or $413.47 per month. That is a substantially higher amount than the loan officer's estimate of $328.13 per month used to qualify my buyer client for his loan...in fact, that extra amount of the property taxes decreases my client's spending power by $16,000 in purchase price...so now that $315,000 house is out of reach for them.

SO - when out home shopping, make sure you or your agent looks into the property tax situation, specifically for those "Direct Levies" that increase the property tax bill! For Sacramento County, you can find this information online at http://www.eproptax.saccounty.net/.

Hmm...the Million Dollar Question - should your rent or buy your home in Sacramento?

I have been speaking with a lot of prospective first time buyers lately, and it seems that the overall sentiment among them is that it has become more affordable to buy a home than rent a home. In many areas and under many circumstances, I believe this to be true. When you take into consideration the average home price and probable monthly mortgage payment in particular Sacramento neighborhoods vs. the average rent, often times the mortgage payment is less. Let's take a look at a few different areas...just for the sake of citing my information sources, for average home price (used to calculate mortgage payment scenarios) I am using most recent January 2011 Trendgraphix data which is taken directly from MLS, and for average rent I am using the most recent Q1 2011 Homepointe Quarterly Residential Rental Survey. For my mortgage payment calculations, I am basing it on a 5% interest rate (which is actually above today's average market interest rates), and including the full PITI - loan principle, interest, monthly property taxes, and monthly homeowner's insurance (and mortgage insurance where applicable).

Natomas - 95833, 95834, 95835
Average single family home sale price: $199,000
Average rent for a 3 bedroom home: $1,361
30-Year Fixed VA Loan (Zero downpayment): $1,357
30-Year Fixed FHA Loan (3.5% downpayment): $1,451
30-Year Fixed Conventional Loan (10% downpayment): $1,319
30-Year Fixed Conventional Loan (20% downpayment): $1,120

Elk Grove / Laguna - 95757, 95758
Average single family home sale price: $223,000
Average rent for a 3 bedroom home: $1,392
30-Year Fixed VA Loan (Zero downpayment): $1,627
30-Year Fixed FHA Loan (3.5% downpayment): $1,400
30-Year Fixed Conventional Loan (10% downpayment): $1,478
30-Year Fixed Conventional Loan (20% downpayment): $1,255

Rosemont / College Greens - 95826, 95827
Average single family home sale price: $147,000
Average rent for a 3 bedroom home: $1,230
30-Year Fixed VA Loan (Zero downpayment): $1,002
30-Year Fixed FHA Loan (3.5% downpayment): $1,072
30-Year Fixed Conventional Loan (10% downpayment): $975
30-Year Fixed Conventional Loan (20% downpayment): $827

Arden - 95821, 95825, 95864
Average single family home sale price: $207,000
Average rent for a 3 bedroom home: $1,226
30-Year Fixed VA Loan (Zero downpayment): $1,411
30-Year Fixed FHA Loan (3.5% downpayment): $1,510
30-Year Fixed Conventional Loan (10% downpayment): $1,372
30-Year Fixed Conventional Loan (20% downpayment): $1,165

Carmichael, Fair Oaks - 95608, 95628
Average single family home sale price: $246,000
Average rent for a 3 bedroom home: $1,360
30-Year Fixed VA Loan (Zero downpayment): $1,677
30-Year Fixed FHA Loan (3.5% downpayment): $1,795
30-Year Fixed Conventional Loan (10% downpayment): $1,631
30-Year Fixed Conventional Loan (20% downpayment): $1,384

Citrus Heights, Orangevale - 95610, 95621, 95662
Average single family home sale price: $179,000
Average rent for a 3 bedroom home: $1,293
30-Year Fixed VA Loan (Zero downpayment): $1,220
30-Year Fixed FHA Loan (3.5% downpayment): $1,306
30-Year Fixed Conventional Loan (10% downpayment): $1,187
30-Year Fixed Conventional Loan (20% downpayment): $1,007

South Land Park, Pocket / Greenhaven - 95822, 95831
Average single family home sale price: $189,000
Average rent for a 3 bedroom home: $1,240
30-Year Fixed VA Loan (Zero downpayment): $1,288
30-Year Fixed FHA Loan (3.5% downpayment): $1,379
30-Year Fixed Conventional Loan (10% downpayment): $1,253
30-Year Fixed Conventional Loan (20% downpayment): $1,064

Obviously there are other tangible and intangible benefits to home ownership as well...for example, a tangible benefit is the fact you can write-off your mortgage interest on your income taxes, and also deduct some other related expenses each year. An intangible benefit might be that as a homeowner, you have the freedom to paint the walls, decorate, plant a garden, remodel, etc.

So clearly these numbers are just a baseline to give you an idea of housing affordability in certain areas. You definitely need to consult a loan officer to see what type of financing is the best fit for you, and ultimately just how much you can afford - and there are several variables that will affect your interest rate and terms. You should also speak with a CPA or qualified tax professional regarding the mortgage interest and other tax deductions to see how it will affect your particular situation. If you need a good referral to either one, feel free to contact me and I can put you in touch.

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Maydestone Apartments - restoration is in full swing!

A few months ago, my sweetie and I were eating breakfast on a Sunday morning and picked up a copy of Midtown Monthly...we were looking through it for some ideas as far as what to do for the rest of the day when we stumbled across an article about the renovation of The Maydestone Apartment Building.

Now I have lived in Sacramento my entire life, and had driven past the old, boarded up Maydestone building on 15th and J Streets a million times, but had never known anything about it. We were so intrigued by the article, we decided to take a little field trip downtown to check it out.

So a little history...The Maydestone was originally built in 1912 as a 32-unit apartment building, each unit complete with its own kitchen, bathroom, and a pull-out beds - a luxury in that era. As Sacramento was rapidly expanding, the demand was high for affordable housing that was located within a short distance to the center of the city.

Fast forward to the 21st century...The Maydestone was boarded up in 2003 after a fire on Halloween night. It has been sitting as a vacant eyesore for the past 7+ years.

Fast forward to today...The Maydestone is being restored to the Mission-Revival style beauty it once was with the help of grants and loans from the Sacramento Housing and Redevelopment Agency. The existing four levels of apartments are being restored and the basement is to being converted into a community center for the residents. They are also making the building highly energy efficient, and it will be LEED certified. There will be 32 units total ranging from small studios to 1-bedroom units. The project architect and the developer are working hard to ensure that the building maintains its original character.

So - the next time you are downtown, swing by The Maydestone! You can peak inside and see for yourself...

Short Sales 101; a refresher course

It isn't a secret that there is no shortage of short sale listings for sale at the moment in Sacramento....in fact many of my listings are short sales.

I fielded a call today from a very nice woman who was just starting her home search, and she was looking for detail about one of my listings. She was unfamiliar with short sales...I found myself explaining exactly what a short sale is, the difference between different MLS listing statuses, listing price vs. offered price vs lender approved price, timeframes, etc. Since we are being teased with this nice weather, and new buyers are starting their home searches, I thought I'd post a little short sale refresher...

If you are not familiar with what a short sale listing is, basically the seller owes more on the house than it is currently worth, so they list the house and attempt to negotiate a lower payoff with their mortgage company so they can sell the house. Keep in mind that purchasing a short sale is A LOT different than a traditional re-sale real estate transaction with an traditional seller who has equity. I tell my buyer clients to take everything they think they know about buying real estate and throw it out the window. A few things to note:

-There are different statuses in MLS that will reveal a bit about the listing. An "Active Short Sale" status indicates that the home is offered as a short sale, and no offers have been submitted to the seller's mortgage company for review yet. An "Active Short Contingent" status indicates that one or more offers have been submitted to the seller's mortgage company for review (meaning, your offer would likely wait in line behind others). These statuses must be updated by the listing agent, and they are not always 100% up to date.

-The price listed in MLS may not be the price the seller's mortgage company is willing to accept. If the listing agent is competent, he / she will have listed it at its current market value, however sometimes you will see a price that is "too good to be true." The seller's mortgage company will do its own valuation or appraisal (often referred to as a BPO - or Broker Price Opinion) to validate the offered price. The bank may counter your offer. Heck, they may counter a perfectly reasonable market value offer too...

-In addition to the possibility of countering the price you offer, the lender may counter certain terms...meaning for example that they may not be willing to cover the costs of that $400 home warranty you ask for. So prepare yourself for the worst case scenario of paying for things like that yourself.

-The term "short sale" is often confused with a quick time period and close of escrow. Short sales are not necessarily quick. The average waiting period for the seller's mortgage company to approve the short sale is around 60-90 days. Some take less time...some take A LOT more time. The fastest approval I have received on one of my short sale listings was 11 days. The longest was almost 2 years. There are SO many variables that will dictate the length of time it takes to get approval...like which lender services the mortgage, which entity owns the mortgage, how many loans there are on the house, how knowledgeable the listing agent is, how cooperative the seller is with the process, if the seller is trying to use a government short sale program, etc.

So.......fasten your seatbelt. My advice to you is to find a competent Sacramento short sale agent to help you navigate the process.