Last night, I got into a good discussion with some family and friends about how things have changed in Real Estate...Specifically...For Young Couples!
Over the past few years, there have been some MAJOR changes in the Real Estate Market!
Homes across the United States have doubled, tripled and even increased in some parts by 5-600%! I know condos in Southern California that were selling for $150,000 that are now appraising and on the market in the mid $500,00's! A half a million dollars for a 1000sq foot condo! And, the association dues are a couple hundred dollars a month as well! Ouch!
The game has changed up drastically...and you want in the game! Or maybe you don't want to be in the "game", but you simply want to take part in the pride of ownership to provide for your family like your parents have and you're simply trying to figure out a way to get there...
Everyone in my age bracket (late 20's) is in the same boat. Our parents started off their families and were able to save the 20% to put down on a home (which wasn't that much in the scheme of things...often borrowed.) Back then, many of them purchased their first home for the average price of a new car these days...Have times really changed that much over time? Sure, interest rates were higher and wages were lower back then...But was it REALLY THAT MUCH DIFFERENT? I think proportionally, it's MUCH DIFFERENT!
Now we must work more hours, invest wiser, find higher paying jobs, save more and have a great budget in place...Not an easy thing to do with my generation. One that has a "have it now" personality..That's right..Have it now...pay for it later!
So...What can you do?
Lenders have "First Time Home Buyer" programs that allow you to finance up to 106% of the purchase price on a home. That's right, you can increase the purchase price and have the sellers offer you a closing credit at the close of escrow to take care of your closing costs. This reduces the amount of cash that you need to come to the table with to purchase the home.
Affordability Factor? In California, I've read statistics that vary between 12-14%. That means that out of 100 people, 12-14 people are in a position to afford that home. Many assume that they are the ones that wouldn't qualify...You might be suprised! The only way to find out is to put yourself out there and try. Find a mortgage professional that understands and can identify with your situation. The worst thing that can happen is you find out where you lie if you don't qualify...but you can set-up a game plan with goals to put yourself into a situation to increase your chances of qualifying.
What are many of us doing?
Moving to areas that are more affordable - I moved my family to Chico, California. We purchased a new home in late 2006 for under $300,000! More home for less...Many of our parents are even making the decision to move to a more affordable area...Why? Most of their net worth is in the form of equity in their home. So, they are "cashing out" and moving to a place where they can get more square footage for less...
Interest-Only Loans -Many of the loans in California are on an Interest-Only product. This means that you are paying what is due to the bank in interest and that's it...no more..no less..So, do you think property values will continue to go up? If so, this might be a loan product for you! The alternative is a "fully ammortized" loan, which will reduce the balance of your mortgage on a monthly basis.
Lease with the option to buy transactions -Young couples that have little,no or bad credit can lease a home from the owner with the option to buy. In such a transaction, the homeowner allows for a "predetermined" amount of your rents to be placed towards the purchase price...Not a bad deal and it works quite well for those that wouldn't traditionally qualify for a home loan.
Purchasing a home is one of the biggest decisions that you can make! Be sure to work with a mortgage professional that takes the time to go through your scenario, treating you with the respect you deserve. You'll be glad you did!
Scott Gormley
Broker/Owner
Oak Valley Mortgage
Direct: 530.592.8362
eMail: Scott@OakValleyMortgage.com
Website: http://www.caloan.com/
Blog: http://www.caloanblog.com/
Scott Gormley
Posted by 
Good post, Scott, with some terrific information. I can't imagine trying to get started in the market today, at least here in Southern California, adn places like NYC and Boston - but then there are many more options (some good some not) than there used to be. 
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Scott,
Good ideas here but I thought interest only loans have come under criticism of late...