In Santa Clarita, if you want to buy a property under $400,000, over 80% of your choices will be condos and townhomes. Historically, most of the buyers for these properties have been first time buyers with the majority using FHA loans to purchase. FHA loans are popular for two reasons: First, low down payments (3.5% down) and Second, lower credit scores (low 600’s) can still get you a loan. FHA buyers have powered our entry level market for years.

FHA loans do come with a catch. The complex the subject property is in has to be “FHA approved,” meaning a detailed review is conducted of the HOA financials and a whole host of other things before deciding whether they want to loan there. At one time, virtually every complex in our valley was FHA approved. These approvals however have time limits and have to be re-approved every few years. For a variety of reasons, dozens of complexes in Santa Clarita have lost their approval. Often it is because the HOA board doesn’t understand, or see the need to spend the money to get re-approved with FHA. Sometimes they just don’t want to deal with the Government paperwork. Other times the rental rate in the complex has become too high (over 50%) for the FHA to continue loaning there. The net result for homeowners in those complexes is a huge reduction in potential buyers and a loss in value. Most homeowners don’t have a clue how big a deal this is until they go to sell and find out their complex lost its approval – in many cases within the last 2 years.

This is not only a problem for the owners of these properties facing a loss in value, it’s also extremely frustrating for buyers who want to purchase but are shut out because the only loan available to them can’t buy them what is available in their price range. The majority of these buyers just don’t have the 10-20% down payment needed to get a “conventional” loan, and conventional loans often limit the assistance from family (“gift funds” or “co-signing”) that would allow them to put more down. This problem, however, is about to be solved by 2 new lending programs coming available next month that are truly gifts that both buyers and sellers may find the best gift they get this Holiday season!
These new loan have so many terrific qualities it’s almost hard to imagine and I believe will not only spur the entry level market, but the move up market from $400,000 to $700,000 as well. First, for buyers with a purchase price up to $427,250, they can put a minimum of 3% down.  For buyers above that price point, the requirement is only 5% down which is also a low down payment loan to help first timers. Next, the loan amount goes up to $625,500, which is huge in areas like Southern California where prices are high. Further, unlike expensive FHA loans which have huge up front closing costs (in most cases about $10,000 to get the loan before you get in) and monthly mortgage insurance on top of that, there is NO MORTGAGE INSURANCE that many buyers consider money flushed down the toilet each month when their credit is stellar. Your credit has to be good (above 700 FICO), but if it is, you are in business.

But wait, there is more! The down payment can be a gift!!  For parents of Millennials, like me, that want to help their children avoid sky high rents and enjoy home ownership this is a low cost loan that I can help them with, that avoids excessive fees and is at today’s low market interest rates. Even better, family members can also co-sign to help get the loan! Because it is also a traditional Fannie Mae loan, you can get it from virtually any lender. It becomes available December 12! For a number of years when the market was soft, people would say to me they thought it was because loans were so hard to get. In most cases that was a small reason why, but it was more due to declining values. Today, it is soft even when we have a lack of inventory to spur buyers and sellers, in part because many don’t have an available fairly priced loan product – especially for first time buyers and first time move-up buyers. This new loan changes that. Happy holidays!

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