CJ Brasiel

I love the Santa Teresa neighborhood. You have the wonderful Santa Teresa Park with 1,627 acres of trails and the historical Bernal-Gulnac-Joice Ranch that offers visitors a taste of how a ranch was ran in the early 1800s. Add in La Colina park for weekend soccer, kite flying, and picnics and you have a well rounded family neighborhood. I have biked many times along Curie and Colleen Drive to get to Almaden Lake Park and have many great memories of the area. As with many neighborhoods, Santa Teresa has seen its share of short sales and foreclosures. This week I wanted to point out a few homes with the intention of helping restore this great neighborhood to equilibrium.

As neighborhoods go, Santa Teresa has seen some stabilization in the market prices and with last quarter 2008 sales. Referring to the chart below you can see inventory is coming down, sales steady, and an almost neutral market between buyers and sellers. Of the 110 active listings, 27 are REOs and 49 are short sales. In the last three months, 31 homes sold (3 shorts sales, 21 REOs, and 7 traditional sellers).

The focus of the post is to share with you some potential deals in the Santa Teresa neighborhood. These homes are bank owned. Also referred to as REOs, foreclosures, or corporate owned.

Before you drive out, take a look at street view on Google. A great tool for scoping the street. This is particularly important for Bayliss. In 2005, this very home sold for $745,000. Now it is listed at a 33% discount from that peak value. Very nice home if you can manage the view.

Many of these homes are large and are great for extended families. Take Keeler Court for example. Great house with 2300 square feet, nice upgrades, on a nice neighborhood street. This home last sold in 2004 for $580,000. That definitely tells you a little bit about the market adjustment. Some predict by the time our housing crisis is over we will be back to 2002 prices.

The home on Camino Verde is literally at the entrance of the Bernal-Gulnac-Joice Ranch. Great park. I have seen wild pigs, wild turkeys, rattlesnakes, and lots of deer when hiking this hill. The views of the valley are amazing once you make it to the peak. Even if you don't buy this home, make a point of visiting this park.

Dondero Way has a bathroom for each of the four bedrooms. Of course, permits are unknown. Another great house with views of the hills. Non-permitted additions always present challenges. Many times I have found that permits were applied for but simply not finalized. If you want to investigate permits, San Jose offers an on-line search. This site provide a way to see what, if any, permits were submitted for and the status. A great resource for any buyer.

Pemba backs up to Santa Teresa Boulevard. It last sold in 2005 for $615,000 and is now listed at $400,000. This is a change in value of nearly 35%. With a little TLC this home could be a great start for a young family.

All of these homes can be found on Trulia. A great place to start your search for a home because it provides so much addtional information about the price trends and other pertinent market information. All of these homes are ready to show and if you would like to check them out please let me know. You can also search for foreclosures by map here. Whether you are looking for an REO or not, Santa Teresa provides a great chance for a new beginning in a great family neighborhood.

After looking at what seems like a million homes, you have found one you like, made an offer and your REALTOR called to tell you, "Your offer has been accepted and you are now in contract." Congratulations! Now what? First, your agent should provide you with a next steps to-do-list. I normally send an email message out to my clients outlining the steps to closing escrow and picking up the keys to their new homes. Here is a basic overview of the steps to completing the purchase:

1.) Immediately follow up with your loan officer and update any documents they might need. For example, updated pay stubs or bank account statements. Your contract date to release the loan contingency is X date. Review the Good Faith Estimate with your loan officer and REALTOR. Discuss a strategy of when to lock rates. Your deposit check will be held in escrow within 48 hours of confirmed acceptance of the contract.


2.) Make arrangements with your lender in regards to how the appraisal will be ordered and the manner in which it will be paid for. Find out the typical turn around for an appraisal report from your lender. Your contract date to complete an appraisal and to assess the value is X.

3.) Decide what inspections you want to complete on the home and schedule them asap. The contingency period to inspect the property per the contract ends on X date. If you need recommendations for inspectors, let me know. I always recommend you be there for the inspection but if you can or can not, I will be there. (Not all agents attend inspections.)

4.) Begin working on home owners insurance. You will need to complete any shopping and determine what type of coverage you will need and who you will be obtaining insurance from. Once you have an insurance agent and/or policy provide your lender with a copy of the policy information and agent contact information.

5.) Review disclosures provided by the seller in a timely manner. Ask questions and get answers. If further investigation is needed about any part of the disclosures provided, complete prior to releasing applicable contingency.

6.) Review inspection reports and decide if any repairs are needed prior to closing. Work with your agent to decide if any estimates for work are needed and schedule a time to obtain said estimates. Consult with your agent on whether or not any part of the contract should be amended based on inspection reported findings.

7.) If the home has a Home Owner Association, make sure you have received the Convenants, Codes, and Restrictions, Financial Statement, Insurance Policy for the Home Association. Review this big pile-o-papers carefully. Ask questions and get answers to any concerns you have about the HOA and/or management of the HOA.

8.) Talk to neighbors. Find out about the neighborhood. Walk around at different time periods. Assess noise, activity, parking etc., before releasing the physical contingency. I provide my clients with a list of questions for neighbors. I also recommend they visit CrimeReports.com and review police reports for the area.

9.) Appraisal OK, Loan Approved, Loan Rate Locked, Disclosures Read, Physical Condition Released...you are now very close to closing escrow on the home. Complete a final walk-thru to make sure all is as it was ( or better) when you made the offer. Review the Settlement Statement, referred to as the HUD statement with your loan officer and agent.

10.) Decide how you will hold title on your new home. Sign loan documents, title documents, final contract, and escrow documents. Bring a photo I.D. and a cashiers check made out to the title company for the remaining balance of closing costs and down payment. Once the loan has funded, the escrow officer will work with the county recorder to record the title in your name. Once recorded, your agent will provide you with the keys to your new home. Congratulations!

Now of course, this is the straight forward closing steps and it is not uncommon to have some zig zags along the way. Make sure you are in constant communication with your lender and REALTOR. Be aware of time lines and take time to read the documents provided. If you do hit some speed bumps, work with your loan officer and agent to find the solutions or the way out of the contract. When making this large of a purchase, do not leave anything to chance. If you stay on top of the process, the next phone call you'll be receiving is, "Congratulations! The title is recorded and you are now the new home owner!"

Many real estate agents will recommend that a seller obtain inspections on their home prior to listing the home for sale. "Why should I get an inspection? Once we know what needs to be repaired we will have to fix it." Well, that is one way to look at it. There are other things to think about. First, knowing the repairs ahead of time and completing them, places your home in the best possible position to earn top dollar. Well maintained homes are more likely to receive the higher price compared to a home where maintenance has been avoided.

Second, If you as the seller accepted a low offer and then have to negotiate repairs mid-stream it can be more costly and discouraging. If you, as the buyer offered a high price and then find out mid-stream the seller does not want to negotiate the cost of repairs, the deal can become quite frustrating very quickly. A well maintained home can prevent these issues and the stress of the contract is reduced.So what happens when you are looking at a foreclosed property for sale? Short sales, REOs, "bank owned", "corporate owned" properties rarely have inspections available for the buyer to review. As a buyer, many agents will say you are "on your own" to obtain inspections. Distressed homes are sold "AS-IS". This means that the seller does not intend to make any repairs and therefore the buyer should make the offer subject to the property's current condition.

Inspections can be costly. Once a buyer has written checks for a home inspection ($300-$500), roof inspection ($125-$150), chimney inspection ($125-$150), pest inspection ($150-$175), it is hard to turn back on the deal. If you cancel the contract due to repairs, you are out the inspection money. If you move forward with the contract you may be able to have your agent negotiate a credit but most distressed property contract addenda have redundant paragraphs indicating the buyer agrees to "AS IS" condition.

As a buyer, you might ask, "Do I need all these inspections?". Even in the worse case scenario where a foundation inspection is necessary ($600-$3000), a buyer might end up spending $1000 to $4000 on inspections. Realizing that the median home price in San Jose is $580,500 we are talking less than 1/2% cost on a major life investment. Is it worth spending $4000 on a half-a-million dollar investment that will be your primary home? Only if you are sure a foreclosed home presents the right deal at the right time. Remember, most private sellers (not bank owned/corporate owned seller) will negotiate repairs and sometimes (particularly in a "buyer's market") they are willing to share the cost of inspections. The foreclosure has to be a very good deal for this to all work out well.

But there are ways to reduce your cost on inspections without throwing away the security of knowing the condition of the home. Even with a foreclosed or short sale property.

For wood destroying pest reports, the Structural Pest Control Board for the State of California maintains copy of any reports completed on a property for two years. Therefore, a buyer can look up the address and see if any previous reports have been completed and request a copy. For free. The state of California states that a pest report is good for 120 days. (Remember, left untreated, termites keep eating.) If the report is under 120 days, ask for the original company to come out and update the report. This is your first opportunity to reduce inspection costs. If you want to learn more about Northern California termites and the costs associated with repairs call Will McCoy at Terminators.

Secondly, a home inspector can help shed the light on suspicious areas requiring further investigation by specific professionals. For example, damp crawl spaces with effervescence can imply a foundation inspection is needed. Missing roof tiles or damaged shingles can indicate the need for a roof inspection. Cracks noted in the chimney can imply a complete chimney inspection would be a good idea. I always recommend my clients be there for inspections. You can ask questions and learn a great deal.

Finally, your real estate agent has looked at a lot of houses and should have a good eye for suspicious items. I am not an inspector but I can certainly point out areas that stick out as potential issues. I always recommend, at minimum, a home inspection and pest inspection on any home I represent. In my opinion $300 -$500 is well worth a client's peace of mind.

Before I go too far, let me say that I am not a mortgage professional and that I always recommend buyers talk to a mortgage professional to decide which loan product is best for them. I write this post because I believe there are many nay-sayers telling buyers there are no loans for them. They also tell buyers that the only loans available require 20% down and credit scores off the charts. That is simply not true.

Prior to 2008, FHA loans were very rare in San Jose and the general Bay Area because the maximum loan limit the government would secure was $417,000. This was the beginning of the exotic loan product season. For those that did not have 20% or were purchasing a home that cost more than $417,000, interest only, no down payment loan products were created. It was the affordability answer for many.

The FHA loan limit for Santa Clara County is now $625,500. This opens the flood gates for FHA loans to be made and many mortgage officers are dusting off the requirements and learning how to complete FHA loans in a hurry. The FHA loan is a different animal and FHA underwriters and approved appraisers have a little more red tape to go through before blessing a buyer on a purchase. However, with this said, FHA loans provide those who have reasonable credit, good salaries, but not much money to put down, a way to buy a home in the Bay Area.

Some will argue that FHA loans end up costing the buyer more. Any loan will cost you more when you do not have 20% down and exceed the maximum insured amount of $625,500. Simple fact. But let us look at the difference between what is required to close for and FHA loan verses a conventional type loan.

The obvious difference comes in the form of down payment. Even with the required impounds, FHA insurance premium, and reserves, the buyer who finances with FHA comes to the table with less.

Obviously, if you place more money down, you will open the door to lower interest rates. With a conventional loan and 20% down, you will not pay mortgage insurance.

The difference in monthly payment for this example would be approximately $500.

The FHA charges a premium to fund their loans and that very much depends on your credit score. If you want to save money on loan costs, bump up your credit scores and reduce your debt-to-income ratio (DTI). This is called the FHA premium. It can be financed into the loan or paid at time of closing.

Also, consider that FHA allows the seller to credit the buyer up to 6% of closing costs. This can be an incredible bonus in the current buyer's market. Where previously sellers almost rarely helped buyers now many sellers realize if they are going to sell their home in this market they need to help make it a win-win. Remember the $42,094 in the above example? Ask a seller to pay 3% of closing cost and you now have lowered that number to $27,094. Ask for another 3% and buy down some points so you can lower your monthly payments and you will be very close to reaching the monthly payment of a conventional loan.

If you want to learn more about the mortgage industry and the ins and outs of working with mortgage officers, I highly recommend the book, Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, by David Read.

There is no doubt that this is a tight lending market. However, everyone involved in the U.S. economy knows the only way to work our way out of the housing crisis and begin reasonable appreciation means extending credit. The government has provided a way for potential San Jose buyers via the increased loan limts for FHA backed loans. With current interest rates hovering around 5% for most borrowers, there is opportunity to take advantage of lower prices and lower rates. It may not be the right answer for everyone but it is a good place to start if you are in the market to buy a home.

Thank you,
CJ

As a real estate professional, I can only watch so much T.V., read only so many Internet articles, only listen to a certain number of people before I end up back in my peaceful sanctuary mumbling to myself. You might be surprised to hear that my sanctuary is not a place of worship or a bar but - out in the neighborhood looking at homes for sale. Yep, I love looking at houses. In some ways, I enjoy it more now then in the boom years.

I can’t tell you how many times in the last six months that I have unlocked the door of a house, walked through, and said to myself, “Not bad.” Then looked back down at my listing sheet to confirm the price and said, “Not bad at all.”

My escape from the constant bashing of the real estate market results in a scrap-book-like frenzy of putting together pictures of homes for clients who have wanted to buy for years but simply could not afford the kind of home they wanted in a neighborhood they wanted to live in. Now, I am able to call them up and say, “I think I might have a home you might be interested in.”

I know. You’re thinking, “But who can get a loan in this market?”. Guess what? There are literally thousands of hungry loan officers out there ready to find you a loan. If there is a way, they can find it. Not the crazy exotic loans. Those are not even available anymore. Good-old-fashioned fix rate loans.

Since I titled this blog post “ Good News in Real Estate for 2009” let me get to the point.
First and foremost, like Alan Murray stated in the Wall Street Journal, this is a good year to invest in real estate and “you can benefit from a once-in-a-lifetime double bonus of low prices and low interest rates.” Take a look at the graph below. If there are deals to be had with foreclosures, we have the inventory of foreclosures to make a lot of deals!

In addition to falling prices, all the previous years of begging on behalf of my clients for sellers to help with closing cost while the listing agent displayed that gentle gesture of “talk to the hand” has provided me with amazing confidence to negotiate closing costs paid by seller on almost every one of my deals. Closing cost on a loan can be any where from 1.5% to 3% depending on the loan type.

Secondly, affordability is coming back to the Bay Area, according to The California Association of Realtors, “the percentage of households that could afford to buy an entry-level home in the state rose to 53 percent in the third quarter of 2008, compared with 24 percent for the same period a year ago.” Specifically for Santa Clara County, “the affordability index rose to 39 percent from 21 percent.” The “affordability index” measures the percentage of households that can afford to purchase an entry-level home.

Third, prior to 2008 almost no FHA loans were available to buyers in the Bay Area. Why? The loan limit for FHA loans was $417,000. In 2008 that was temporarily increased to $729,000 and in 2009 will be $625,500. In my humble opinion not having the FHA option prior to 2008 is part of what created these exotic loan products that placed so many buyers in losing situations. Why are FHA loans important to home buyers? Because FHA only requires 3.5% down payment for qualified borrowers. This also helps with affordability because for those buyers who can afford the monthly payment but do not have 10-20% down, they have an option not available prior to 2008.

Fourth, rental rates are going up. In fact since 2005, San Jose has seen a 26% increase in rental rates. Analysts are projecting rents will rise nearly 10% annually over the next several years for a two-bedroom rental.

For this next point I have to disclose: Because tax rules vary based on income and other factors, you should consult an accountant or financial advisor for advice on your particular tax situation. The fifth reason is the tax benefit of owning a home. Where else can you get a tax-free gain of $250,000 if you are single and $500,000 if you are married on your investment? Also interest on the home loan, property taxes, lending costs in the way of “points”, and moving expenses are all possible avenues for tax savings.

Believe me, I could go on and on but won’t. I also want to add that it is NOT the best time for everyone to buy. I DO NOT think all is roses and pushing someone to buy anything is a very bad strategy. What I do believe is that if you have wanted a home and thought you would never be able to afford the Bay Area, now is the time to reconsider that premise. Find an agent that you like, that you trust, and that gives you all the time and information you need and buy a home. It may very well end up being the best year for investing in real estate.