Rent or Buy in Watsonville?

Rent or Buy in Watsonville?

In 2007 - 2009, we saw housing prices come crashing down like they never have, at least in our life times. Home prices across the state of California declined 40%. The last two years, prices have bumped along the bottom as buyers cautiously re-enter the housing market.

Among people I talk to, the mood of buyers has changed a lot since 2005. No one is expecting to double their money in five years, but they still have to live somewhere, right? So for many people, the issues become more personal and immediate. Do I want to have to ask my landlords’ permission to paint the bathroom a different color, or to put up a basketball hoop? Do I want to live in my own place? Will my monthly bills go up or down? Is it safe to buy a house and can I swing it if I wanted to?

Only you can answer the personal questions, but I found a great tool for figuring out the financial piece of it. The Department of Housing and Urban Development or HUD has a very nice rent vs. buy calculator on their website at:

http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH

I plugged in an example of a 4 bedroom home in Watsonville. Purchase price $350,000, loan rate 4%, 3.5% down payment ($12,250) vs. rent of $2200 per month. To be ultra-conservative I said housing prices will stay exactly the same as they are today, no appreciation over the next 10 years.

The first dramatic difference is that your monthly payment drops to $1,274, but there are many other savings that you might not think about. There is a hefty tax deduction. Rent will increase over time. Your mortgage payment stays fixed. Over time you are paying down the loan.  Over a 10 year period, the overall savings amounts to $140,787. If you were to assume even a 2% increase in home prices, your total savings would be $207,796 over the same 10 years.

It is something to think about. Where else are you going to accumulate that sort of savings? What will that mean to you and your family? Take advantage of the savings if you can. Talk to a lender to see if you qualify. You will be worlds ahead a few years from now.

Note: The calculator above uses these items in its calculations: private mortgage insurance, homeowner's insurance cost, loan closing cost, cost of selling a home, property tax, homeowner's tax saving, and rent increases. Calculator results are estimates only.

Mike Young is a Broker Associate at Thunderbird Real Estate in Capitola.

Mike Young - Thunderbird Real Estate
Realtor, Broker Associate, MBA, SFR, CDPE, HAFA
(831) 234-1545
License 00952966
mike@MikeYoungProperties.com

   

2012 - The year of the short sale?

To be clear, a real estate short sale is any sale where the net proceeds are not enough to pay off the mortgage completely. In other words, the bank is paid back “short.” That is where the name comes from. It has nothing to do with the amount of time involved. Short sale is most often used as an option to avoid foreclosure. Foreclosure is expensive for lenders and is often the worst option for borrowers.

Though short sales were almost unheard of 5 years ago, they have become more and more common in recent years. There are several advantages for both lenders and borrowers leading to an increase in short sales both nationally and locally. More and more Watsonville homeowners under financial duress are opting to attempt a short sale.  In 2011, 141 homeowners in zip code 95076 successfully completed a short sale compared with only 60 in 2008.

Forecasters are predicting that 2012 may see an even sharper increase in these transactions due to the following factors:

1. Foreclosure activity in 2012 is predicted to increase 25% over 2011 as banks work through their legal problems associated with the “robo-signing” scandal. An increasing number of homeowners, when faced with foreclosure, will choose a short sale instead.
2. New laws in 2011 granted greater protections to Californians who complete short sales. It is now illegal for any mortgage holder to pursue a short sale seller for any shortfall in paying off the mortgage.
3. Many banks, including Chase, CitiBank, and Bank of America are offering cash incentives for delinquent borrowers to do short sales.. These may range from $3,000 to $35,000
       
4. Perhaps the biggest motivator for homeowners under financial hardship to complete a short sale in 2012 is for tax reasons. The Mortgage Tax Relief Act, eliminating tax on mortgage debt forgiveness, expires Dec. 31, 2012.  Consider this example, if you owe $500,000 on your mortgage, but proceeds from foreclosure or short sale only net your lender $400,000 you may be liable for ordinary income tax on the $100,000 difference.  Especially in the Watsonville area, where home values have dropped 60% or more from the peak in 2005 - 2007, this may result in a huge tax consequence, just when you can least afford it.

If you are considering a short sale, it is extremely important to get advice from your lawyer and a qualified tax advisor.

 Resources:

 California Rural Legal Assistance Watsonville

 21 Carr Street
 Watsonville, CA 95076
 831-724-2253

 Government programs

www.FreddieMac.com/singlefamily/avoid_foreclosure.html

http://www.makinghomeaffordable.gov/pages/default.aspx

Fannie Mae Making Home Affordable Program Eligibility Address Check

Freddie Mac Making Home Affordable Program Eligibility Address Check

HAFA Program Information. Home Affordable Foreclosure Alternatives

HAFA Unemployment Program Information.

HAMP Program Information. Home Affordable Modification Program

Mortgage Forgiveness Debt Relief Act and Debt Cancellation

Homeowners Assistance Program (HAP Program) Information

Preforeclosure Sales Program through HUD

Department of Veterans Affairs Regional Loan Center Compromise Sale Program

Mike Young is a Realtor and advocate for the underwater homeowner based in Capitola, CA

mike@MikeYoungProperties,com

831-234-1545