FHA is a Great Program for Orange County Move-Up Homebuyers
Orange County move up homebuyers are finding out that FHA is a great program for helping them buy a new home. Current Orange County homeowners are learning quickly the advantages that FHA has over Conventional financing, mainly the low down payment requirement of only 3.5%.
The drop in property values has created an excellent opportunity for current homeowners to sell their home and purchase a bigger and/or nicer home. The issue has been the lack of equity in the home being sold. In an “up” market, a home seller can count on using equity to fund a healthy down payment for their next purchase. But in a down market, a large down payment becomes a challenge. This is where FHA comes to the rescue. FHA only requires a 3.5% down payment. There is no need to scrounge together a 20% down payment. Below is an example of how this can work for an Orange County move up home buyer.
Let’s say an Orange County family, we’ll call them the Smith’s, bought their home for $500,000 in 2002. They put 20% down when they first bought the home. At its peak in 2005 the home increased in value to $700,000. In 2005 they considered buying a $1,000,000 home. They estimated that if they sold their home for $700,000, then after commissions and loan payoffs they would have $250,000 down payment, leaving them with a $750,000 loan amount. Their estimated total mortgage payment, including taxes and insurance, was going to be over $5,500 per month. That payment was more than they were comfortable with so they elected to pass on the home of their dreams. The typical $1,000,000 home was going to give them additional space for their growing family, but they never did anything. Now it’s 2009 and they’ve seen their home drop in value by 40% from the peak. Current value is now only $420,000, or $80,000 less than when they bought it for. Their loan balance has been paid down to $365,000. If they sell now, after commissions and loan payoff, they will only net approximately $25,000. Sounds like a bad situation. But not when you really look at the numbers.
The $1,000,000 homes they were dreaming of a few years ago have also dropped 40% and are now worth closer to $600,000. Also, with an FHA loan they would only need 3.5% down, or $21,000 for down payment. Plus they can get the seller to pay most of the closing costs, so netting $26,000 will actually be enough to get them into their Dream Home. But what about the payment? The Smith’s have heard that FHA has monthly mortgage insurance. Plus, what kind of an interest rate are they going to get with such a small down payment? To their delight they find out FHA interest rates are comparable to Conventional financing, even if they had 20% down payment. And the Monthly Mortgage Insurance is that a problem either. Their total payment will be approximately $4,300 per month.
If the Smith’s had bought the $1,000,000 home a few years ago with a $250,000 down payment they would now be $150,000 upside down and have a mortgage payment approximately $1,200 more than if they buy the same home now. To make things even better, there is a flurry of activity from First Time Buyers in Orange County looking to buy homes in the $250,000 to $500,000 price range, making it easy to sell their home. The $600,000 price range is moving, but not as quickly, allowing them to cherry pick the home of their Dreams.
Orange County FHA Loan Limits are $729,750
A few years ago FHA loan limits in Orange County were $362,790. But now, with the increase in FHA loan limits to $729,750, it is possible to buy a home in Orange County for $756,000 with only 3.5% down. A home can be bought for $800,000 with only a 10% down payment. Now is the time for current home owners to move up into the Home of their Dreams. The first step is to have an experienced Orange County, CA FHA Loan Expert prepare an analysis based on your individual situation.
Authored by Tim Storm, an Orange County, CA Loan Officer – Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7.
Contact us for your Orange County FHA Mortgage:
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com
* Licensed by California Dept. of Real Estate. Lic. # 01190897
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