What's the Difference?

Just a couple of weeks ago, I had a buyer come into one of my open houses who just loved the house. He and his wife wanted to write an offer on the house right then. The home at the open house was priced over a million dollars. They both had great jobs, good credit and had heard on the radio that loan rates were down below 5%. They assumed that they could get financing without any problems due to their outstanding credit rating and they were planning to put 20% down. Well of course they can get a great loan, a "JUMBO LOAN" at the rate of 6.5%.
Like so many other buyers, they were shocked to learn that the difference between a Conforming Loan and a Jumbo Loan was nearly $1,003 in their payment per month. They asked a lot of questions after I explained what their new payment was going to be. With this new information, they didn't qualify for this home.
So what is the difference between a "Conforming Property" and a "Non-Conforming Property?" What is the difference between a "Conforming Loan" and a "Non-Conforming Loan," or a "Jumbo Loan" and a "Super Jumbo Loan?"
A "Conforming Property" is any residential property of 1 to 4 units. It can be a Condo or Town Home, as well as a Single Family Residence.
A "Non-Conforming Property" would be any property of mixed use, or 5 or more units, etc. An example of this might be "The Lofts" in the redevelopment of downtown areas such as: LA, Fullerton, or Brea, or store front properties with apartments above. Note: these can be good investments, however, it is hard to find a lender to loan on these types of properties...usually a "Commercial Bank."
The "Conforming Loan Rate" is the rate that you will normally read about or hear advertised. The Federal Housing Finance Agency (FHFA) has determined that the "Conforming Loan" loan limit will remain at $417,000 for 2009 in most areas in the U.S., with higher limits in certain cities and counties. (Feel free to call me and inquire about the loan limits in your area 714.626.8880).
A "Jumbo Loan" is any residential loan above $417,000. The "Jumbo Loan" typically carries a higher interest rate than conforming loans. Jumbo Loans have varying limits for different areas of the country as well.
A "Super Jumbo Loan" is a specialty type of loan. Usually an "Adjustable Rate Loan" with a shorter term limit of 5,7,10 years. An example of this type of loan is a $25,000,000 home with 50% down leaving a loan amount of $12,500,000.
You may ask, "What difference does this make to me?"
If you are buying or selling a home, or just thinking about it, it could mean the difference between you or your potential buyer qualifying for a loan or not. Or, in having to put down a larger down payment to get a better interest rate.
EXAMPLE #1: If your original purchase price is $521,000 and you put 20% down ($104,200), your loan amount would be $416,800, a "Conforming Loan."
EXAMPLE #2: If your original purchase price is $750,000 and you put 20% down ($150,000), your loan amount would be $600,000, a "Jumbo Loan."
This is where we separate the proverbial men from the boys, or ladies from the girls. Good Realtors, from the inexperienced.
In this market, of the buyers purchasing property with the maximum conforming loan limit of $417,000, they would have a payment of approximately $2,839 with taxes and insurance included. This means the buyer should have approximately $8,500 in income per month before taxes.
If the purchase price is $750,000 with 20% down ($150,000), a loan amount of $600,000, a "Jumbo Loan," the payment would be approximately $4,982 with taxes and insurance included. This means the buyer should have approximately $15,000 in income per month before taxes.
The above is an EXAMPLE ONLY. When you are thinking of buying or selling, or if you have any questions regarding loans, give me a call. There is a difference in Realtors.

John Chesshire
714.626.8880

Times can be rough and times can be hard!

Don't you sometimes wish that someone would come and bail YOU out? I sure do. However, I don't think that is going to happen for my company or me anytime soon!
Like most of you, I'm one of those working guys who believes that this real estate market will too pass. It goes up and it goes down and sometimes you just have to go along for the ride. Keeping a good attitude in the face of troubled waters will always win over the doom and gloom of what's heard on TV, radio, and read in the newspaper.
Remember 1979 - 1982 and 1990 - 1994? Well even if you don't... Like today's market, those were some pretty rough times for real estate. The home loan interest rate was 16 - 19% in the early 80s...and unemployment was over 14% here in California. Chrysler, Ford, GM and Anheuser Busch plus a few other major companies even left California, causing the loss of thousands of jobs! Yes, times can be hard.
One of the most valuable lessons I learned during those tough times was to not buy into the doom and gloom of the day. There are always positives to every situation. Our lives are only so long, and between here (however old you are) and whenever there comes, we must strive to be happy.
Attitude creates energy! If people around you are upbeat you will tend to be upbeat as well. If they are negative and baa-humbug about everything...well you get the idea.
During these trying times we must remember every morning to count our blessings, especially the little ones...good health...good friends...the shared love of your family. Toward the end of the year I will be getting married, and let me tell you...I picked a winner! I thank my lucky stars everyday for her, and I am so thankful to have her in these hard times. And most of all, let's all remember that we do live in the greatest country in the world.
If things are hard here...they are even tougher outside the US. Where in the world is better then here? Russia? Germany? France? Spain, Egypt, Italy? Greece, Africa? Any part of South America? Japan? North or South Korea? China maybe? NO, I think not!
I don't profess to have the answers to the economy, or to Wall Street's issues or even the Real Estate market...in which i am an expert in. I do however, have an answer to changing things that are happening around me during these times.
The answer is a positive ATTITUDE.
I can control my attitude. I'm helping my neighbor take out her trash...I am putting in a little more time with one of my favorite charities, HBIC...and when someone asks me "How's it going in the real estate market?" I say, "When it's tough, the tough get going!" with a BIG SMILE!
I believe the same amount of people are still getting married this year...the same amount of babies are getting born...moving up in size...moving down in size...relocating out of the state and coming into Southern California...We all have to have a place to live and that's where i come in.
Think about it...who would you rather be dealing with when it comes time to utilize a service, be it a doctor..dentist..mechanic..check-out clerk..or in my case a real estate broker...when the times comes you want to deal with a professional with a positive attitude! Next time you see your neighbor give away a big smile and say..."It's just another day in paradise!"
One final positive thought about how tough the real estate market is...Most of the part-timers and the wannabe agents who jumped in for a quick buck...etc. have left the industry That means that cream rises. This has always been a fabulous career for me and I wouldn't give it up for the world.
When it comes time to buy or sell your house, who do you want working for you? a wannabe...or an experienced, professional real estate agent with a positive attitude. I know what my choice would be!
Don't hesitate to call me if you have any questions, or comments, or even just to say "hello" :)

John Chesshire
714.626.8880

RECENT LISTINGS!!

What's the difference between a 'Short Sale' a 'Pre-Foreclosure' a 'Bank Oned Property' and a 'REO Property'??

Many people ask me what's the difference between a short sale, a pre-foreclosure, a bank owned property, and a REO property. This is a great question because of the way one would approach making an offer to purchase a particular property. The requirements, protocols, and timing issues differ greatly.

• A "Short Sale" is basically a collection review committee process. It is handled by several different bank representatives whose sole responsibility is to evaluate the circumstances surrounding the owner's inability to continue to pay for the loan they've obtained, through the original purchase or a refinance home loan and the amount of financial loss the lender will incur in agreeing to a Short Sale. The "Short Sale" title is when the cost of the sale and value of the property is less than what is owed on the property when selling. The existing lender/lenders agree to accept less than what is owed on the property in order to avoid the expense of the foreclosure process. The transaction is complex and requires the owner to fill out additional paperwork that is reviewed by the lender for an approval. Some agents will nick-name this a Pre-Foreclosure Sale as a marketing strategy to attract a certain type of buyer to the property. (Approximately 80% of the Short Sale offers to purchase never close escrow. Beware of the "wolf" type of agents who would encourage a Short Sale listing without sharing the 3 different seller options or the buyer agents who do not explain the Short Sale purchase process fully prior to writing an offer. Inexperience can be costly.)
• A Bank Owned & REO Property are the same. "REO" is an abbreviation for "Real Estate Owned." These properties are the result of a foreclosure and have become the asset/liability of the lender. These REO properties will have no warranties from the bank and are sold in "AS IS" condition. An example of what this means is; the bank has never lived in the property, therefore, exempt from the laws requiring disclosure has limited title exposure and does not have to give a termite clearance, etc. In most foreclosure properties, the previous home owner was financially strapped and usually unable to maintain the property, most likely emotional and angry to boot. There may be unseen damage to the property or other liens on the property that the bank is unaware of also. These properties are usually priced about 5 - 10% below the market and many times the bank may be willing to give some buyer concession such as closing costs. These properties when sold are setting the market comparable in most neighborhoods and have an effect on every one's home value.

The Short Sale and REO purchases are both complicated transactions and are not for the inexperienced. I cannot recommend enough the use of an experienced realtor when trying to acquire one of these types of purchases. There are many new and old laws governing the purchase process of these types of purchases. There can be a degree of risk and exposure to the new buyer and the brokers involved, such as alleged "predatory equity stealing" or there may also be time lines for "seller's redemption." The actual timeline for a "Non-Judicial Foreclosure" is (121 days) and may come into play when purchasing a Short Sale property.