What follows is an intriguing post about the future value of FHA assumable loans at today's rates. Courtesy of Elizabeth Weintraub, Sacramento-based real estate agent and author. A very informative read!
Lots of real estate agents want to know what's the next thing that's on the horizon for real estate. The savvy agents want to jump on that bandwagon and ride the road to easy riches. This morning, thanks to inspiration provided by Broker Bryant's excellent blog, I would like to share my thoughts about the matter.
I look at the real estate market in Sacramento like an analyze-it-yourself medical chart. You know, the ones that say if you have a cough and a fever, you can diagnose that condition yourself. The option 1 arrow points to an increased consumption of liquids and plenty of bed rest. Or, option 2, ignore those symptoms and go out to party like there's no tomorrow. The illustration following option 1 shows a happy woman being hugged by her husband and kids. The illustration from the option 2 path might show a bare foot with a toe tag on it.
With that in mind, here's what I think will happen in real estate, not only in Sacramento but throughout the country. Eventually, interest rates will rise. That's pretty much a given. Qualifications are already much more stringent than they were a few years ago. When interest rates go up, a home buyer's purchasing power will go down. In flat markets like Sacramento, we probably won't see a lot of appreciation over the next few years.
So what will be hot? I'll tell you. Sellers who have assumable FHA loans. If you're taking out a conventional loan today to buy a home, you might not be able to sell your home down the road. First-time home buyers might not want the conventional or FHA rates offered a few years from now and may be unwilling to take out a new loan to pay off your existing loan. But they'll be drawn like a moth to the flame to those available loan assumptions. Why? Because those interest rates range from 4.5% to 5.5%. They are fixed-rate mortgages. And they are assumable.
If you're a homeowner who has an FHA loan with a low interest rate, you could be sitting on a gold mine.
I already have my plan in place. Down payments will need to be in the 7% to 8% range to do a cash-to-loan transaction. If there is equity leftover, sellers will need to offer owner financing. That means either carry a second mortgage, do an all-inclusive trust deed or a land contract. Those financing instruments are saleable to investors. The agent who has the source of funds to buy those financing instruments will have an edge in the marketplace.
See, I am not only a Sacramento real estate agent. I am also a veteran of real estate from the 1970s and 1980s, back when we used to create paper (a second trust deed) and use that as a down payment on another home. I understand how this type of financing works. I also realize that now agents could be deemed arrangers of credit and, as such, subject to all sorts of laws and regulations. I ask agents: are you guys ready for this? Are you ready to do business in year 2013?
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.
Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.
The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.