Home Buying in Orinda>Question Details

Mike, Home Buyer in Orinda, CA

Buying a house in Orinda--market trend (summer through winter), financing with 10% down, foreclosure houses?

Asked by Mike, Orinda, CA Thu Mar 12, 2009

Hi, my wife and I are interested in buying a house (at least 3 BR 2BA) in Orinda in the $700K to $800K price range. My questions are: (1) should we expect to see more houses coming on the market during the summer months through fall and winter in this price range? (2) How likely will it be for us to get financing with 10% down payment? (we both have excellent credit scores and I've heard the Obama administration upward adjusted the limits for conforming loans to $725K); (3) If we are interested in getting a foreclosed house (preferably not at the public auction) would a general real estate agent be able to provide that service or do we need to find someone who specializes in foreclosure transactions? What is the advantage of working with a real estate professional as opposed to just getting the listing and working with someone who only takes care of paper work for a discounted fee? Thanks, Mike

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Hi Mike:

(1) Should we expect to see more houses coming on the market during the summer months through fall and winter in this price range?

Looking back 2 years, for 3bed/2bath properties in Orinda, it’s been a little different each year: In 2007, May & July showed the highest availability. In 2008, it was May/Nov/Dec. From 2/07 to 2/09 availability of 3bed/2bath properties in Orinda is up 60% (but this only represents eight listings at the close of 2/08). Current listings stand at 10 for 3+bed/2+bath 650-850K (assumed negotiating down to 800K limit), and 5 for strictly 3bed/2bath.

Please see http://docs.Steven-Anthony.com/2yrOrinda.pdf that provides a "Feb-07 to Feb-09" history for 3bed/2bath/650-850K properties in Orinda covering the following: a) Median Sold Price, b) Sold Properties, c) For Sale Properties, d) Under Contract Properties, e) New Properties Listed, f) Supply/Demand, g) Average Days on Market, h) Months Supply of Inventory.

I need to make a comment regarding the first chart you will see, the Median Sold Price chart. I typically advise Buyers to NOT use Median price reports for making purchase decisions due to the fact a “median” is defined as “the number separating the higher half of a sample from the lower half.” Most Median reports are of questionable usefulness because the sample data it too wide, which can be skewed by segments of market activity not matching your individual “target home.” For example, I’m sure you can appreciate the difference in data quality between an “all home sales in Orinda” versus “all single family 3Bed 2Bath home sales in Orinda”, which has been provided via the link above. However, there is an even more useful tool…

A Comparative Market Analysis (CMA) always provides the best representation of market price/activity/trend direction - for the specific property details you search on. For example, we may want to add square footage to the “3/2” search criteria, or even place a requirement that our search only look at homes within a certain radius of a school or other important location. This “maps” your needs with actionable market information. Sure, this will reduce the number of results; however, the data will be truly meaningful, and search criteria can always be changed.


(2) How likely will it be for us to get financing with 10% down payment? (we both have excellent credit scores and I've heard the Obama administration upward adjusted the limits for conforming loans to $725K)

The FHA/Fannie/Freddie limit for Orinda is $729,750
https://entp.hud.gov/idapp/html/hicostlook.cfm

Currently, the lenders are SLOWLY providing pricing for the new “Agency Jumbo” loans, but it’s been at slow pace. With 10% down you will be paying Mortgage Insurance (MI), whether the loan is FHA or non-FHA.

Personally, I would consider a mixed financing strategy of starting with an FHA loan (min down of 3.5%), and then possibly refinancing at a later time. Here's why: if housing trends continue (downward as I suspect they will at least until Q209 and probably longer), the market will evaporate any additional equity you pay in over the 3.5% down. With California's unemployment rate topping 10% and the global economy contracting, cash reserves are important from a financial security perspective these days. This situation will come to pass. When the market improves, and you are able to benefit from market-based equity appreciation, you can pay down the FHA loan balance - or, even better, look to refinance out of the FHA loan into a non-FHA loan product that recognizes market equity in calculating whether MI is required) thus removing the MI cost (see note on FHA's rules as to when mortgage insurance can be removed below). There is some “rate escalation risk” associated with this strategy of refinancing out of the FHA loan and moving out of the FHA loan has to make financial sense; however, since we have saved the 7.5% using the FHA loan upfront (of course you kept this unscathed in an interest bearing account) these dollars can now be employed to buy down the interest rate of any subsequent non-FHA loan product! By the way, FHA refinances (appropriately termed “Streamline refinances”) are easy. Definitely "food for thought..."

I like the FHA option due to all these benefits:
1) 3.5% minimum Downpayment.
2) Up to a 6% Seller Credit allowed for buyer's closing costs and Seller concessions (non-FHA max is 3%).
3) FHA requires that identified safety/health issues be corrected (definite plus in this market).
4) FHA allows up to $8,000 in financed energy efficient upgrades without negatively affecting borrower's debt-to-income ratio.
5) Cash reserves NOT required.
6) Upfront Mortgage Insurance may be financed.
0 votes Thank Flag Link Fri Mar 13, 2009
[Part 2]

7) Non-occupying co-borrowers are allowed.
8) High and flexible qualifying ratios.
9) FHA loans are assumable.
10) No pre-payment penalties.
11) Will consider "compensating factors" in determining whether a loan should be granted.

If you can say that FHA loans have a disadvantage it’s the program's MI removal rules. While FHA only requires a 3.5% down payment, this means you will be financing 96.5% of the sales price and you will have to pay Mortgage Insurance for a MINIMUM of 5 years, or until you have paid your original LOAN AMOUNT down to 78% (not that the loan amount is 80% of current market value, which is typical for non-FHA MI removal). This "78% or 5-year Rule" before Mortgage insurance can be terminated is covered here: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/fi…

I can refer you to a FANTASTIC Certified FHA Specialist if you like.

(3) If we are interested in getting a foreclosed house (preferably not at the public auction) would a general real estate agent be able to provide that service or do we need to find someone who specializes in foreclosure transactions?

From an Agent perspective, there are no special requirements for buying a bank-owned (REO) home (there are 2 currently available in Orinda) or a pre-foreclosure Short Sale (also 2 available, but be forewarned these will take 90+ days before you know whether the investor will approve the deal – painful!). I have done both. And, by the way, don’t use RealtyTrac to find “foreclosures”, in most people’s opinion it’s a scam to get you to pay for information any Realtor has access to.

Auctions are a different thing all together:
Type 1: Trustee Sale - If you are looking for actual Trustee’s Sale auctions, they are published in the newspaper on a weekly basis under “public notices.” Notices are also typically posted at the entrance of the County courthouse. "Loans" need not apply: California state law requires liquid funds when your bid is accepted. The Trustee accepts cash or cashier’s checks (and nothing else). Most who do this on an ongoing basis will go to the auction with several denominations of cashier’s checks up to the amount they are willing to pay for the property of interest. Any set cashier's check overage will be returned to you. Condition of the property is a major concern.

Type 2: Auction Company - These auctions allow the bank(s) to unload lots of properties faster in this "bid-up" environment. It's really more of a pressure sales environment. I'd stay clear of these sales-oriented auction properties. Although you do get some time to do inspections, this is really a process for someone who can walk into a house and know what it will cost to place it back into shape. You can pay to have inspections done, but this might cause you to bid up the price of the home during auction time so you don't waste your money paid for the inspections. Really, there's no reason to be in an environment whose sole purpose is bidding-up a property's price in these times.

(4) What is the advantage of working with a real estate professional as opposed to just getting the listing and working with someone who only takes care of paper work for a discounted fee?

If you found this and the other posts useful, stress reducing, and informative you have your answer. This is going to be one of the largest financial transactions of your life – experience and full attention to every aspect of the transaction are IMPORTANT. Since the Seller pays the commission to the Buyer's Agent there really is no reason not to get professional guidance when purchasing a home, after all, the Seller has full professional representation – you should too!

Best Regards, Steve
MBA, GRI, ABR, e-PRO, CMPS, RE Masters
REALTOR® / Mortgage Banker-Broker / Certified Mortgage Planning Specialist
0 votes Thank Flag Link Fri Mar 13, 2009
Mike-to answer your questions.

1) Generally, Summer season is peak buying season. We may see some REO's come to market as well. The Orinda market is fairly localized, so get with an agent to help you evaluate.
2) Like the answers from the others, get with a mortgage professional regarding your financing strategies.
3) Hopefully, in this market, most agents will have either sold or listed a REO. If they haven't done any REO transactions, they'vs been in a shell or denial. Interview a few professionals and get representation when you buy. Email me if you have any concerns or questions about any REO properties.
Web Reference: http://www.crosswalkre.com
0 votes Thank Flag Link Fri Mar 13, 2009
Hello Mike.

I wonder where you live now. Hopefully you have some familiarity with Orinda anyway. It is generally a good idea to learn as much as you can about an area (often including renting for a while) before you buy into the community. I used to live in Orinda myself and I loved it there but I will say that it is not for everybody.

You should see a wider selection of homes coming on to the market there over the next couple of months. This is peak buying season so sellers target March-May as the best times to put their homes up for sale. Most in Orinda will be private sales though as opposed to foreclosed homes or short sales.

There are certainly pitfalls you need to be aware about with short sales and bank owned foreclosures. I have represented buyers in a number of such transactions and I have put together a document that compares the merits of all types of transaction. If you let me have your email address I will send you a copy.

As far as home prices there are concerned, who can say for sure? My personal opinion, based on how previous recessions have affected the Orinda market, is that you need not be concerned.

Financing shouldn't be a problem for you. You can get an FHA loan up to $729,750 with a minimum 3.5% down. 10% is even better and there could be other options open to you. I recommend that you talk to a mortggae specialist with experience of FHA and other loans such as Michael Caires of Diversified Capital Funding. He can be reached on (510) 377-6093 and he will advise you without any obligation.

Finally, you absolutely need to be represented by your own agent. From a price perspective alone. This is a competiive market and the listing agents has a fiduciary responsibility to the seller, not the buyer. You surely would not want to have an agent represent you who did not want to get you the home for the best price. Just getting a couple of thousand dollars rebate won't be much compensation for paying a higher price than you need to.

If there is any way I can be of help or if you have any more questions, please feel free to contact me.

Bernard Gibbons

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Bernard Gibbons, Realtor, e-PRO Certified Internet Specialist
J. Rockcliff Realtors, 15 Railroad Avenue, Danville, CA 94526
Phone (925) 997-1585
bernard@bernardgibbons.com

P.S.: I can let you have full details of all homes for sale in Orinda, including bank-owned foreclosures. Just ask.
0 votes Thank Flag Link Fri Mar 13, 2009
Mike,

A critical element is finding an outstanding realtor who knows your market cold. A top knowledgable realtor can help you locate, negotiate, finance and close on your dream home at the best possible price.

I am a member of the Leading Real Estate Companies of the World as an associate with Jordan Baris, Inc. Realtors in NJ. We have a phenominal affiliate who is able to help you in Orinda from start to finish.

Please call me at 973-736-1600 or email me at gperez@jordanbaris.com and I will place you in the hands of the best agent in Orinda.

If you call an office directly you will likely reach the agent on "Floor Time" but not the top producing professional in the office whose business is based on referrals such as I am suggesting here.

I am excited to help you!

Enthusiastically,

Gloria
0 votes Thank Flag Link Fri Mar 13, 2009
Hi Mike,

You have asked some great questions.;

(1) The peak for houses appearing on the market in a community like ours, is in the Spring/Summer, so that families can be settled in their new home prior to the beginning of the new school year.
(2) Financing for 10% down is still available in your price range, however, I would strongly suggest you speak with a lender to get a clear picture of all options available. We have referrals of lenders to give you.
(3) Foreclosure properties are handled in much the same way as any sale. Although most realtors have had experience with foreclosures, it would be wise to interview a couple agents to find out their experience level and to find one that you feel comfortable working with and trust.
(4) Advantages of working with full service realtors are many; you want one that is fully connected to the community in which you purchase, they should know the inventory, other agents and the market trends. You will want someone that has a strong office behind them, so that you are well represented if any unusual situations appear now or in the future, . The adage, 'you get what you pay for', really applies in real estate, where your interests need to be protected, where our hard work and knowlege can be translated to a smooth, ethical and profitable transaction for you.

Please feel free to contact any one of us for more information.
Regards,
Suzanne Looker
0 votes Thank Flag Link Fri Mar 13, 2009
Mike-
I will answer #2:
Yes, you can obtain financing in your situation. If you are going Conventional, you will need to put at least 10% down and have a 700+ credit score to obtain the proper mortgage insurance. However, if your purchase price is lower (approx $750,000) I would strongly suggest an FHA loan with only 3.5% down. You will get a better interest rate and a cheaper MI payment. I would highly advise it.

If you have any questions about financing programs, please let me know.
Luke Allison
Flagstar Bank
828-777-8828
Luke.Allison@flagstar.com

Apply Online: flagstarloans.com/lallison
0 votes Thank Flag Link Fri Mar 13, 2009
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