Residential Financing is Changing in Lake Elsinore
I am sure you had already guessed that based on the news reports every single DAY! Let me tell you just a couple of the ways things are changing and how you can stay above the crowd.
First, be realistic. I don't want to come across condescending, but many consumers still have the rose colored glasses of 2003-2004 on. Here in Lake Elsinore California, real estate values have plummeted. Your home is worth anywhere from 40k to 300k less than it was 4 years ago. The market has changed drastically and your home needs to be a better deal than the 4 foreclosures in your neighborhood if you want to sell. Who can you blame for the mess? The irresponsible people that bought homes they could not afford. The dentist turned "Investor" that speculated the double-digit appreciation rates would continue indefinitely and bought 3 "Flips". That brings up another point, the old adage in real estate investing is, "The only losers in real estate investing are those that speculate". You can't time the cycle, no one can. It can be a long drawn out cycle like we had just recently or a short violent cycle. You can't catch the bottom and you'll never get out at the very top. Consistent investing strategies will hold true. Buy and Hold. If you can't afford the home at the full payment without a tenant don't buy it. Also, one of the greatest investors of all time, Warren Buffet, said this little piece of investing gold; "Be fearful when everyone else is greedy, and be greedy when everyone else is fearful". That is why the smart investors are picking up cash-flowing properties all day long in todays market.
Second, kiss the neg-am loans good-bye! And good riddance! These loans are a plague. In my entire mortgage career I have done one of these loans and it was for a family member who's husband was leaving her. She couldn't afford the payment and needed to keep the house. I explained to her that it was a band-aid and that she needed to get out of the loan as soon as she could afford it. These loans, if used properly, have a place in an investors tool belt and nowhere else. These loans will cost you your home if you are currently in one. The theory behind them was adding 3-4% a year to the balance of your mortgage would be negated by the appreciation rate that was historically at anywhere from 6-8.5%. Made sense if you were shortsighted. Now that the value of homes has dropped by a minimum of 10% in Southern California it doesn't seem to make much sense anymore.
Also, stated income loans are going the way of the dinosaurs. There is legislation in congress adding more regulation to the finance industry including the banishment of stated income loans. So if you are self employed and you take legal tax deductions like mileage and depreciation of business assets to offset your income you are in for some hurt. If congress has there way you will play hell getting approved for a loan. Even worse are those that set up a sub-chapter S corp. You get paid a salary from your corporation and also own it. Your salary probably doesn't reflect your true income so you would normally go stated income with verified assets. How will it work now with the new legislation? I'm not really sure, but it will probably include a more commercial approach to underwriting the loan including adding back depreciation, mileage, and the write-offs that don't reflect true loss of income.
I will be writing as often as possible in between marketing and working with clients with updates on Lake Elsinore finance and real estate issues both commercial and residential. If there are any topics you would like me to comment please email me and let me know.
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