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Housing slowdown creates opportunities for first-time buyers

By Jeff Lazerson

1/17/19

What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.

Rate news summary 

From Freddie Mac’s weekly survey: The 30-year fixed averaged 4.45 percent, unchanged from last week. The 15-year fixed rate improved to 3.88 percent, down 1 basis point from last week.

The Mortgage Bankers Association reported a 13.5 percent increase in loan application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $116 lower than this week’s payment of $2,440.

What I see: Locally, well-qualified borrowers can get the following fixed rate mortgages at  a zero point cost: A 15-year FHA at 3.625 percent, a 30-year FHA at 3.75 percent, a 15-year conventional at 3.75 percent, a 30-year conventional at 4.25 percent, a 30-year FHA high-balance ($484,351 to $726,525) at 4.125 percent, a 15-year conventional high-balance (also $484,351 to $726,525) at 4.125 percent, a 30-year conventional high-balance at 4.50 percent, a 15-year jumbo (over $726,525) at 4.25 percent and a 30-year jumbo at 4.75 percent.

What I think: 

Surely, the home supply spike and diminishing parade of prospective buyers played a big role as the California Housing Finance Agency zero-down, first-time buyer numbers for southern California new homeowners soared.

In the fiscal year ending last June 30, San Bernardino County recorded an astounding 1,307 CalHFA purchase transactions, Riverside County came in second with 1,133 transactions, Los Angeles County had 706 transactions and Orange County had 148, according to CalHFA representatives Molly Ellis and Eric Johnson.

When I last wrote of this program in January 2017, CalHFA sales for the previous two years (not one year) totaled 779 in San Bernardino County, 834 in Riverside County, 805 in L.A. County and 139 in Orange County.

So, what is all the rage about?

During the latest housing boom, Southern California inventory levels were very tight. Sellers were less likely to have their sale escrows fall apart when they accepted all-cash offers or those with substantially large down payments. Those less skin-in-the-game scenarios were non-starters.

Now buyers with CalHFA financing have a better chance of getting their offers accepted.

CalHFA is available for conventional and Federal Housing Administration financing, for one-unit (home, condo, townhouse), primary property occupants who have not owned a home in the past three years. Non-occupant co-signers no longer are allowed as of Feb. 1.

Maximum household income limit for is $128,700 for Riverside and San Bernardino counties, $128,300 for Los Angeles County and $174,200 for Orange County.

The maximum conventional loan amount is $484,350 in Riverside and San Bernardino counties, requiring a minimum of 3 percent down. For FHA financing, the maximum loan amount is $431,250, requiring a minimum 3.5 percent down.

Los Angeles and Orange counties allow both conventional and FHA loan amounts up to $726,525. Conventional loans up to $484,350 require a minimum 3 percent down, and conventional loan amounts from $484,351 to $726,525 require 5 percent down. FHA requires just 3.5 percent down across the board.

CalHFA can lend you all the down payment funds (3 percent conventional, 3.5 percent FHA and up to 4 percent for teachers and school employees), effectively allowing you to get in with zero down.

Those down-payment loans will only cover 3 of the 5 percent down payment required for high-balance conventional mortgages in L.A. and Orange counties, however. It will cover 4 of the 5 percent down for a school employee.

Conventional and FHA mortgage rates are likely to be cheaper if you can cough up the down payment and closing costs on your own. CalHFA is best for borrowers who don’t have the funds or who want to preserve their precious funds for home improvement and the like.

Since its tax season, CPA Marcelo Sroka thinks it’s a good opportunity to consult your tax advisor to see if increasing your payroll exemptions (for higher take-home pay) makes sense. Some homebuyers might realize higher itemized homeowner deductions than the standard deductions than renters typically take.