I received a call yesterday from a borrower with an interesting situation that I thought I would share.  For the last 2 years she has been working on improving her credit scores and reducing her debt.  She started with a 420 credit score, and today is enjoying a 640 mid credit score.  She wants to buy a home in her area, because her current rent payment is nearly equal to what a California home loans payment would be for the price of a home she's interested in.  Her income is solid, her debt is low, but she does not have any money for the downpayment.  In California, up until 5 weeks ago, there was a loan program called FHA access, that allowed you to secure a 97% FHA 1st, with a 6% second that would cover the down payment and closing costs.  Citimortgage was the servicer of this program, but as many of you know, they have ceased their wholesale operations as of the middle of January.

So saving for a downpayment is the next step for her, and this little trick can make all the difference in the world.  If a borrower is interested in purchasing a home, figure out what the monthly PITI for the home would be.  Take that amount and subtract it from the rent payment they are currently making.  Whatever that dollar amount adds up to be, save that amount each month, open up a savings account at a local bank, and deposit that amount each month for 12 months.  I asked her to do just that.  If she does it, she will discover at least 2 things.  First, whether or not she can actually afford the higher mortgage payment, and second after 12 months of saving, she will have a significant portion of her downpayment saved up to buy her California real estate.

Considering how unstable the California real estate market continues to be, and how uncertain the economy as a whole is looking for 2009, there's a strong probability that she will find after 12 months that California real estate prices still remain low, and California mortgage loan interest rates competitive.