THE SECOND STORY | November 25th, 2010

Making FHA financing work for you, not against you.

Blog photo:  This was taken when Evan, Erin, and I went to Scotland 3 summers ago.  It just seemed so friendly! Earlier this week I saw it scroll by on my desktop where all my photos randomly show up and realized it would be good for this week’s blog post.

Many of you have been among the original recipients of a weekly email blast update that started about 11 years ago. It had the same name as today – ‘The Second Story.’  Back then there were no photos, no links, in an attempt to give you a flavor of what I saw that week in the Alameda real estate market.  I typed it up, sent it out only to those who opted ‘in’ and just hoped I was getting a mental image across.  It morphed into having the awards, then photos, then links.

Two and half years ago I took the leap and went from private to public with those observations and The Second Story became a blog.  My Broker said I’d been blogging for years but it never occurred to me that’s what it was…it was an email blast.

As has been the tradition for most of those years, The Second Story goes into hibernation for the month of December, so this is it for the rest of 2010.  It’s a necessary break because keeping an eye and ear out for interesting items is always on my mind.  So it’s nice to be free of it for a bit, but strangely enough, I never really am.  It’s just that instead of writing and constructing, I’m taking notes for when I start up in the new year.

My hectic social life (NOT!) around New Year’s Eve and Day,  will dictate if I start then or on the first Thursday of the new year.  When I do, we’ll catch up with the weeks we’ve missed.

Blog post:  Picking up from last week, I was writing about FHA loans and with the low downpayment, if a quick sale is necessary you will be going short.  I mentioned that there are FHA loans that are adjustable rate mortgages.

These are not for the feint of heart but do serve a purpose for some folks.  First, the interest rates are even lower than the 30 year fixed rates.  Second, they are fixed for a period, like 5 years.  Third, you know exactly the terms the  loan will convert to if you still have that financing and those terms will remain for the remaining 25 years.  Yes, you can refinance them.

So who would consider this?  Somebody with extreme job security.  I mean extreme.  Somebody who can safely say that house will be home for 10-15 years.  Somebody who understands the low rates of today and the concept of leverage.  Somebody who is discipline enough to structure a payment schedule that has more $ going to the principle.  Somebody with an excellent income who is approved for the 30 year fixed loan, but who then decides to take the ARM.

That person would consider making a payment at the higher 30 year fixed interest rate (or more), and whatever is over the required 5 year fixed payment, would apply the balance of the higher amount to principle.  Somebody who wants to get rid of that disgusting Private Mortgage Insurance (PMI) charge by obtaining a 20% equity position, somebody who gets that if he/she sticks with that loan beyond the 5 years that the expected (in this environment) increases in interest rates won’t be so hurtful since the principle has been paid down.

It might be somebody who may be able to pay more towards the principle by breaking the monthly payments into every two weeks, thus effectively turning that 30 year loan into 23 years.  (Check with your own lender and try to set up that draw from your checking account on that schedule….you are just splitting the monthly payment into two equal parts, the result being you are pre-paying an extra full principle payment every year and it is never too late to start.

The goal is to knock down that high loan balance to an 80% equity position as quickly as possible. Then look at the interest rate situation and make the next decisions.

Also don’t think that by pre-paying you are buying a free ride to skip a payment.  Not so much.  Not ever.

And one more thought….I’ve had clients who could afford to take a 15 year fixed loan.  But even with the lower interest rate, the payment obligation is super high.  I suggest that they take that 30 year fixed loan and then pay it off at the 15 year rate, applying the additional amount to principle.  That way if they need some new tires one month, they have the ability to pay at the 30 year rate and still drive a car.

I’ve had personal experience with ARMs since 1988. Because we have 5 units (one is our principle residence) we must obtain commercial financing.  No choice. It’s a whole different ball game and 30 year fixed rate loans don’t even exist.  We split those ARM payments into every two weeks for about 13 years before I refied our loan last year.  The new lender doesn’t allow those split payments in their system so that’s one of my projects….set it up so I can start to prepay that puppy.  And the big winner with that loan?  Was us! It out-performed (was lower) than any fixed rates that worked for 1-4 units for its life.  But how to choose one is for another day.

Alameda real estate this week…

Unsold properties this week 185, 184 last report
Pending listings this week 89, 94 last report

Highest and lowest priced NEW listings this week

Tuesday tour   7 with 2 repeats, plus I saw another one that I don’t expect will be on a tour, or open. See the awards below.

New 10

BOM (back on market) 0

Repositioned properties (price changes)  6

Pending10

Sold 15 
notes: 
-the first solds at Grand Marina are here.  
-1525 Gibbons original list was 965K, closed for 769K
-1417 5th original list was 825K, closed for 660K

Market rejected properties (expired) 0

Withdrawn/canceled 3


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

Get me a facelift!  3 way tie!


OK!  That’s a wrap! I hope you had a lovely Thanksgiving and have a great holiday season.  I am most grateful to be able to do the work I do, to have the BEST clients in the world, to continue to learn, and hopefully provide value added services to you that help you along your real estate journey!  

In the meantime, if you have questions, concerns, stories of your own,  and/or comments about the real estate market, keep them coming.   I definitely ‘do’ real estate during December, and add a few personal projects into the mix: cleaning up my church Treasurer job/procedures now that I’ve been at it almost a year; figuring out Medicare insurance coverage for my dad (who knows what a formulary is?);  plus it’s time for planning and visioning for the new year.  
All the best!  marilyn

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Marilyn

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! www.MarilynSchumacher.com to see how it has all turned out! I'm so blessed!