Celso Neves’s Blog Posts

Rents to soar in the next 2 years and home Prices to go up 29.1 % in the next 5 years in Los Angeles-Long Beach-Glendale

I got the report for Los Angeles-Long Beach-Glendale with 29.1% appreciation in the next 5 years and San Bernardino-Riverside-Ontario with 12.09 % appreciation in 5 years.

Additionally, rents in Los Angeles will keep going up for the next 2 years.

Mortgage payments fixed for 30 years sound like good music to my ears.

Capture-msa-la-glendale

Capture-msa-rs-sb

Capture-rents

How can you save money with an ARM adjustable rate (variable rate) mortgage?

Most of the customers would agree that a fixed rate is better than a variable rate. I agree that this is true most of the time for most of the clients.

Nevertheless, I would like to explain the variable rate because it may make sense and save my clients some money sometimes.

The most common ARM is a hybrid ARM. It includes a fixed period and then it starts to vary. As an example, let’s analyze the 5/1 ARM with caps 2/2/5 and a 1 year LIBOR as the index.

The 5 in 5/1 is the period in that the rate is fixed (5 years), the 1 is how often it can change (once a year). The caps are there to prevent payment shock, and to prevent default if rates go up too fast and/or too much. The first 2 on the caps is how much the rate can go up on the first reset (when rates change and payments are recalculated), the second 2 is how much the rate can go up on subsequent resets and the last number 5 is how much the rate can change for the life of the loan.

Let’s see how the variable rate loan compares to a fixed loan. Let’s assume a $400,000 loan, 5/1 ARM 2/2/5 at 4.00% and a 30 years fixed at 4.25%. For the index, we use 1 year LIBOR and we are going to assume that it is growing more than the caps so we can see how it works. By the way, the rate is calculated by the base rate plus the index, subject to the caps.

 

ARM

Total

LIBOR (*)

 

Rate

Payment Balance

Payment

 

Year 0

 $400,000

Year 5

4.00%  $(1,893)  $361,371 ($113,592)

Year 6

6.00%  $(2,293)  $360,836 ($141,112)

Plus 3%

Year 7

8.00%  $(2,710)  $354,357 ($173,633)

Plus 3%

Year 8

9.00%  $(2,921)  $349,068 ($208,688)

Plus 2%

Year 30  $- ($979,894)
 

Fixed

Total Fixed Rate
  Rate Payment Balance Payment

Advantage

Year 0

 $400,000

Year 5

4.25%  $(1,949)  $362,771 ($116,936)

 $(4,743)

Year 6

4.25%  $(1,949)  $354,349 ($140,323)

 $7,277

Year 7

4.25%  $(1,949)  $345,570 ($163,710)

 $18,710

Year 8

4.25%  $(1,949)  $336,417 ($187,097)

 $34,241

Year 30  $- ($701,615)

 $278,279

The table above shows that if you plan to sell or refinance your house in the first 5 years it is better to go with an ARM product. The benefit is $4,743 and includes the sum of total mortgage payments and the mortgage balance at the end of 60 months.

There are other factors that affect the attractiveness of a fixed rate mortgage. Because a fixed rate mortgage implies less risk, it generally results on the lender willing to relax on DTI (debt to income ratio), and LTV (loan to value), which results in more buying power for the borrower. Therefore, a marginally smaller rate of the ARM product with lower initial payment, not necessarily will result in higher loan amount.

Many of my clients are very skeptical about the mortgage industry in general. They either have had a terrible experience themselves or know someone who had. I often spend a good amount of time explaining that we don’t do any of the loan products that caused so many problems in the past. The ARM products are a hard sell and there are no benefits for the lender either. In conclusion, despite the short-term benefit of an ARM product, I will offer the ARM products only when the client expresses the intent to sell or refinance the loan in less than 5 years or expressly ask for an ARM quote.

(*) The assumption used for the for the LIBOR is not an estimate. It is an extreme case so that we can show how the CAPS work. Please see below the 30 years history of the LIBOR.

Capture-LIBOR

 

 

You can Buy your First House with less than the Security Deposit of your next Rental.

  1. You can buy a $439,000 house (*) with less than $4,000 from your pocket.
  2. You can ask the seller to pay for $2,000 and pay less than $2,000 from your pocket.
  3. You can use a gift from a parent.
  4. Your security deposit on your purchase may be returned to you in full as you move-in.
  5. You can qualify with less than $6,000 gross monthly income (and no other debts).
  6. You can use your savings to pay-off your debt and qualify.
  7. You can have a parent co-sign for you and qualify with less than $6,000 gross income.
  8. You can have a rental property and still qualify.
  9. You may have had a foreclosure 3 years ago or a bankruptcy 1 year ago and qualify.
  10. Real Estate appreciates on an average of 5% a year. Your equity can be $159,000+ in 5 years.
  11. Your rental will be more than your mortgage in a couple of years.
  12. You can be living in your new home in less than 45 days after an accepted offer.
  13. You can actually love your own home.

For a free, personalized consultation in one of our offices in Downey or Ontario or Mission Hills, please call Celso at (562) 704-1651.

Text (562) 704-1651 for different income, different home prices and for condos.

(*) The house/condo price limit is $600,000 in LA and OC counties and $400,000 in SB and RS counties. Estimates based on an FHA loan, min FICO of 640. Condos also available with conventional loans. Subject to income limit and other restrictions. First time home buyer is 3 years not living in primary residence.

The time to buy a house is now.

Many people were waiting for the elections to buy their house because there was some uncertainty. I myself saw the mortgage rates go up abruptly in the 2 weeks that followed the presidential elections and guessed that home prices would go down. It took only 2 additional weeks for the mortgage rates to come down and stabilize at the level before the elections.

Many of my clients that can buy won’t buy due to the uncertainty about home prices. They think that home prices are too high. Maybe I have the answer for them. There are many factors that affect home prices, but the most important is supply. Because we are at full employment and will stay like that for a long period, homeowners will be able to make their mortgage payments on time. We are in a regulated mortgage market now. There are no teaser-rate mortgages, balloon-payment mortgages, and variable-rate mortgages are rare. Additionally, everybody knows that there is low inventory (see chart bellow) and it should stay like that.

The other factor is demand. As more and more unemployed people got jobs, the demand for new homes increased (FHA allows borrowers with 1 month on the job after an unemployment of fewer than 6 months). So, with decreasing supply and increasing demand, prices would have to go up and they did.

Now, with the stability of full employment and low inventory, home prices should stabilize (actually the chart bellow shows slow growth since 2013). The economy can’t grow faster because it requires more workforce, and we are at full employment. The only way home prices will go down is if the economy goes down. The only way this will happen is if it grows too fast and the Fed has to raise interest rates to control inflation. So, before home prices go down, if they do go down, they will accelerate.

In the meantime, rents will keep going up. If you buy you will accumulate some equity, pay less income taxes, take advantage of the still historically-low interest rates, and have a fixed mortgage payment for the next 30 years; no matter the inflation.

The chart bellow came from Freddie Mac. Their economists only project 2 years, but it adds some numbers this story.

Rates-HomePrices-Homesales-freddiemac-Celso-Neves

inventory-0417

HomePrices-0417

 

 

Conventional loan approving 1 Year Tax Returns for Self Employed? Yes!

For loans closing after June 15, 2017, if the business exists for 5 years or more at closing then we can use 1 Year tax returns for Personal and Business.

From a loan officer perspective, this is huge. Our economy is much better than in  in2015 and getting better. It is expected that the 2016 profits and salaries be mostly better than in 2015. Before we would have to use the average of 2 years.

This change means more buying power for self-employed, small businesses, and medium and large businesses also.

5 + 1 Steps for a Great Home Loan

  1. First Meeting: Bring your goals and your worries and leave with a clear path to your home purchase or refinance. We give an overview of the process and go over income, credit, debts, and sources of down-payment.
  2. Find the best program for your scenario and goal: We have many programs including a Zero Downpayment (FHA or Conventional), FHA low FICO score 580+, Jumbo Loans up to $3,000,000, FHA 203k Fixer Upper Loan, and many other programs. We will select a few and let you decide what is best for your family. Continue reading 5 + 1 Steps for a Great Home Loan

Quick Facts that can change people’s lives.

By now, you know that we have a mission to help families build wealth through homeownership. You can be a source of information and change people’s lives by sharing this info bellow.

  1. A college student that graduates and starts a full-time job on the same field can help his family qualify or buy his own house with the first-month paycheck.
  2. A person with no credit history can have 3 FICO scores in as little as 45 days by applying for a secured credit card with just $200 or less.
  3. There are systems that can predict with a precision of $100, how much your FICO will go up by reducing your credit card balance or paying off a collection. We include this analysis free of charge with your first meeting. Continue reading Quick Facts that can change people’s lives.