Evolution of Cash vs. Conventional vs. FHA in the Sacramento Real Estate Market

Just thought i'd post a quick blog today about the evolution of what types of buyers have been in the market over the past 5 years.  Let's take a quick look to see what happened, where we are at today and potentially what is to come in the near future.

Here's the percentages of sales according to the type of buyer.

As you can see from the chart, Cash sales were at a high in 2012-2013.  While FHA buyers were struggling at that time to get accepted offers and hit a low in 2013.  Since then, the cash buyers have slowed down a bit and that has allowed more opportunity for the FHA buyers to purchase more homes as well as more Conventional loan products have become available in the past three years.  SO you can see how more conventional sales are going through as well.

That's a MACRO look at the Sacramento REal Estate market, as a whole.  Lets now take a MICRO look at an individual neighborhood.  Let's look at my great neighborhood of College-Glen, near the American river and Watt ave.

As you can see, there are a few similarities but not much of a mirror image there.  This shows the difference in analyzing the market from a large scale and then from a small neighborhood perspective.  Looking at the county as a whole can give you a broad perspective but it really might not be exactly what is going on in your specific neighborhood.

Bottom line, most neighborhoods in the Sacramento Area are seeing more Conventional and FHA buyers purchasing homes than Cash buyers.  The biggest reason is that since home prices have increased over the past three years, the properties are no longer as good of deals for cash investors any more.

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clear skies,

Doug Reynolds

Realtor

916-494-8441

         

www.RealEstateWithDoug.com

www.CollegeGlenRealEstate.com

Points Lose Favor

With interest rates at or near record lows, many borrowers are seeing little reason to pay points when buying or refinancing a home.  Some are even opting for what’s known as “negative points,” agreeing to a slightly higher rate to help pay closing costs.

Making sense of the story

• Paying points enables a borrower to “buy down” the interest rate on a mortgage in exchange for an upfront fee.  The trend away from points partly reflects borrower sentiment that rates are already low enough, according to industry experts.
• A point equals 1 percent of the loan amount, so paying one point on a $250,000 refinancing costs an extra $2,500 at closing, in addition to other mortgage fees, taxes, and escrow amounts.  Paying a point usually reduces the interest rate by 0.25 points over its term, so for instance, instead of 4 percent, the rate is 3.75 percent.
• The average number of points paid in 2011, according to a Freddie Mac survey, was 0.7 percentage points, less than half the levels people paid in the 1990s.  The average has been 0.7 percent for three years, after it hit a low of 0.4 percent in 2007; in 1995 it averaged 1.8 percent, according to Freddie Mac data.
• The primary advantages of paying points are a lower rate and monthly payment.  To decide if paying points is worthwhile, borrowers should consider two key decisions: How long they plan to live in the home, and how much they can afford in close costs.
• Many mortgage professionals suggest following this rule: If the borrower plans to live in the home for at least five years, paying points will help the homeowner to reap savings. 
• Some borrowers are even going for negative points, which is also called a lender rebate or points in reverse.  In exchange for accepting a higher interest rate, the lender agrees to give the borrower a credit, which is usually used for closing costs.

clear skies,
Doug Reynolds
 
www.BHGshortsales.com

Handling high closing costs

Closing costs can increase the price of a home by as much as $10,000, sometimes more.  Borrowers who are “cash-poor” can ask for assistance, or talk to their lender about a lender credit toward closing costs.

Making sense of the story

• Some lenders advertise that if borrowers agree to accept a mortgage interest rate from a quarter to a full percentage point higher than they would ordinarily qualify for, they can receive credit toward their closing costs.
• These mortgages are sometimes called no-closing-cost loans, though the term is misleading.  The credit usually covers only fees charged by the mortgage broker or bank, like the loan origination fee, the underwriting expense, and the appraisal.  That generally leaves title insurance, mortgage-recording taxes, insurance, and escrowed taxes to cover.
• The amount of credit depends on total closing costs and other loan details.  Generally, for every one-eighth of a point increase in interest rate, borrowers receive a credit worth half a percentage point of the principal amount.
• While these mortgages can be helpful to some, borrowers should carefully review all the details.  There are pluses and minuses to these loan types.  A downside is the higher rate and monthly payments remain in place through the life of the loan.
• Doing a side-by-side comparison of loans with and without the credit can be helpful.

clear skies,
Doug Reynolds
 
www.BHGshortsales.com

Real-time Mortgage rate quotes

The home loan comparison website MortgageMarvel.com allows borrowers to obtain real-time interest rate quotes based on the loan amount, the property's value and the ZIP code, all while remaining completely anonymous. Pricing is updated as quickly as it changes — usually daily, but sometimes more frequently, says Rick Allen, director of strategic initiatives.

However, the best and most accurate way to get an exact rate quote for you is to get preapproved with an experienced local loan officer.  They will be able to provide you the best information but the mortgage marvel website is a good guideline tool to reference.

clear skies,
Doug Reynolds
 
www.BHGshortsales.com