THE SECOND STORY | November 18th, 2010

The down low of the upside on low down (payments) & the downside: being upside down.

Blog photo: I took this a couple of weeks ago. I posted it quickly on my Facebook page, noting the light shows that we are privileged to witness along the San Francisco Bay. The light is so outrageous this time of year through February!

Blog post: The subject is FHA loans. The upside…if you can qualify for it, you can get a loan with as little as 3% down. Add in some pretty hefty closing costs that include a variety of points (1 point = 1% of the loan amount), PMI (private mortgage insurance which the buyer pays-both up front and monthly, either for a fixed period of time and/or until there is a 20% equity position in the property that secures the loan), and the myriad of other costs, a buyer may be into the transaction for 6%. That’s the upside of the down low on low down (payments).

Here’s the rest of the story. IF you have SOLID job security and/or other SOLID income sources, that FHA loan can really be an answer. But if, for some reason, you need to sell that house in a relatively short time (days, months, even years), and the market stays flat, you become a short sale. The downside is you may have had 6% into the transaction when you closed. It will cost you probably 6-7% to sell that property (commissions, more closing costs this time on the seller side). That means you’ll be 12% in the hole so you’ll need at least a 12% increase in value to be made whole!

I had this chat with a first time buyer, a friend, a few weeks ago. The thought was they’d buy in an’ inexpensive’ East Bay area and those price tags were reeling them in like fish on a line. They figured they’d get their money working for them and in 5 years, move on. Sounds good.

But to make that work, they’d most likely need another 6% in appreciation to be able to buy the next house. And that’s assuming significant changes haven’t been made to the FHA program. So now they’d need to see a return of 18% on the first purchase in order to ‘move on.’

And if they’ve received that 18% return over five years, and they are looking to move up, just not move on, the next area probably has had better appreciation, and those homes might be out of reach, unless cash has flowed into the situation, or job income has increased a fair amount.

So what’s the moral of the story? Think a bit more forward? See if your dollars can buy a smaller place in a better location? Have a plan B and stay in one place longer? Do some simple math? Because the reality of the FHA loan is that the day you close on it, you are already upside down. And that’s the downside on low down (payments).

Next week….if I don’t think of something else….how to make FHA and ARMs work together, as anticipated by some very bright and experienced clients. Of course, all my clients are very smart and discerning….every one of them! They never cease to amaze me, make me smile, and energize me. I am so blessed!

Quick Glimpses
-Getting preapproved for financing….jumping through the hoops.

Alameda real estate this week….
Monday was a busy day. Clients wrote an offer on a wonderful house. It’s so wonderful that 10 other buyers jumped into the pool! My clients wrote a marvelous offer. But it’s hard to beat an offer of all-cash-14-day-close-no-contingencies, eh? Then I put a new listing on the market.
305 Court Street is a 4/2.5 1964 Duet for 600K and shows very well.

Unsold properties this week 188, 184 last report
Pending listings this week 94, 94 last report

Highest priced and lowest priced NEW listings this week

Tuesday Tour 7 with 0 repeats

New 13

(back on market) 0

Repositioned properties (price changes) 14

Pending 17

Sold 9

Market rejected properties (expired) 3

Withdrawn/canceled 5

Alameda real estate awards this week...remember this is only my perspective!


OK! That’s a wrap! Carry on! Carry an umbrella! Whatever you do, make it work! I guess I won’t need to water the garden for a few days.

Come see me at 300 Court Street Sunday 2-4pm. best, marilyn

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I arrived in Alameda in 1973, as a new bride...with husband Carl Schumacher, both of us from Newport Beach. He was embarking on his career as a Naval Architect (i.e. yacht designer) under Gary Mull. Please see the 'ABOUT ME' page in this website! to see how it has all turned out! I'm so blessed!