It’s no secret that between higher prices and higher rates, housing has become so unaffordable for many. Prices kept increasing from 2008 until May of 2022 which was the peak of our market. It has, since then, come down a little. But only a little. For your information, per Sacramento’s MLS data, average price of sold homes was only $217,000 in 2010 and it’s $632,000 today. That’s a 191% increase. “Say something we don’t already know, Bahman”. I hear you. And if high prices weren’t enough, mortgage rates have also almost tripled since their lowest during COVID era. (Just to give a first time home buyer an idea of how much they have gone up: Rates were 4.25% when I bought my house in 2013. During covid, I, along with millions of Americans refinanced to 2 to 2.5%. Now, they are at 6.75%
Here are a couple of tactics buyers can use to make home buying maybe a bit more affordable.
Find a house with an “Assumable Loan”
An assumable mortgage is a type of home financing arrangement where an outstanding mortgage and its terms are transferred from the current owner to the buyer. Let me explain that with a real life example: I’m helping my client Andrew in buying a house in West Sacramento. His lender quoted him a rate of 6.75% for a conventional loan. (If you’ve never bought a house, think of a “Conventional Loan” as “Regular Loan” or one you can get if you have 20% as downpayment) The seller bought the house a few years back with a VA loan (a loan available only to the veterans) at the rate of 4.75%. (Only VA and FHA loans are assumable) So, Andrew is “assuming” that 4.75% VA loan. Just how much is he saving? According to my online calculator, his monthly payment on the $600,000 loan would’ve been $3,697/ month if he was to get a conventional loan with a 6.75% interest rate.
But because he is assuming the seller’s 4.75% rate, his monthly payment is only $2,973. That is a $724/ month in savings. What do you think? Not too bad. Right?
A couple of things to keep in mind about “Assumable Loans”.
- You have to look for properties which have assumable loans. They are not all over the place but they are out there. The best thing to do is to tell your realtor to look for properties with that kind of financing available. I’ve noticed that in areas where there are lots of military personnel, there are more properties like that for sale, like in Suisun City and Fairfield.
- Lenders only allows buyer to assume the balance of the loan which is left. Say, a house is selling for 700K and the current loan balance on it is only 500K. That means that the buyer will assume that 500K and has to come up with 200K of their own money, cash. They may not get a second loan for the remainder 200K. And since a lot of buyers don’t have that much cash to put down, they don’t qualify for the assumable loan to purchase this house and have to go the “usual route”.(Conventional, FHA or VA loan)
If you are interested in finding a property which has an assumable loan, give me a call.
Use prop 19, 60 & 90 to save on your property taxes
We all have to pay property tax and it is based on the purchase price, the higher the price, the more one has to pay in taxes. I’m not going to get into the details of it, but there are laws in effect to help people over 55, severely disabled persons and those affected by wildfires or natural disasters, to pay less in property tax if they sell their home and buy another. Call me if you have any questions.
Negotiate the price down
Just a few years ago, market was so much in favor of the sellers (sellers’ market) that even if you offered them “asking price”, there was still a chance that your offer didn’t get accepted. I once wrote a $550,000 offer on a $500,000 house and our offer wasn’t accepted. Well, “we aren’t in Kansas any more”, meaning market has shifted and sellers are more likely to accept a less than asking price offer on their home, particularly if it has been on the market for some time. “How much lower can we offer?” That is very much a property specific thing. Hire me to be your realtor and I’ll let you know. I’m a great negotiator.
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