Billions, Trillions and a House in Santa Cruz

Flushing Money
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Flushing Money

Flushing Money down the Toilet

These sure are interesting times. Washington Mutual (my bank) – gone. Wachovia (which just bought up World Savings a while go) is now part of Citibank. The much-touted $700 billion bailout plan gets shot down in the house of representatives, and Wall Street falls 777 points to erase $1.2 trillion dollars in market value. Glad I sold all my stocks 2-3 weeks ago.

I know, I’m part of the problem. I should have just sat there and watched as my hard-earned dollars evaporated, sucked it up, been a man, and lost all that cash, the price to pay for participating in our capitalist system.

Except that I, like many of you, can’t help but feel that the system is, perhaps, a bit rigged in favor of the big guys. Like Washington Mutual, for example – my understanding is, the Feds took it over, wiped out the shares of everyone who owned it, and sold it to JP Morgan Chase for a couple of billion dollars. And the WAMU shareholders got nothing.

So what does all this have to do with Santa Cruz Real Estate? Pffft. Wish I could tell you. One thing that’s very interesting to me is this claim that the credit markets are “frozen” and that’s why we need this $700 billion bailout. From where I sit, the credit markets do not appear frozen. At worst, they appear congealed.

I’ve actually been selling a lot of real estate this year, and almost everyone who is buying is getting a loan. It is true that in order to get a loan these days, you must meet a much stricter standard. Last I checked, though – that’s a good thing. Easy credit, liar loans, all that – isn’t that how we got in this mess to begin with?

So let me assure you – if you want to buy a house in Santa Cruz, and you have decent credit (at least a 580 FICO Score to qualify for an FHA loan, I believe) and you have the debt-to-income ratios required by the guidelines. But if you have that, a pulse, and a paltry 3.5% down payment – you’re in.

Let’s say you want to buy a starter house or condo for $500,000. Mind you, the median price these days in the county is $585,000 (as of August), so it’s getting to the point where you can actually buy a habitable structure in a somewhat central location for that kind of bread. You’re looking at a down payment of $17,500. That would leave you with a whopping loan of $482,500 and payments (all-in, including principal, interest, property tax, and insurance) of about $3,500 a month (roughly, approximately – and that’s before your considerable mortgage interest tax deduction).

What’s that, you say? $3,500 is a lot to pay every month? Yeah, it is. So perhaps you would want to – gasp – have a bigger down payment, like 10 or 20%. Or buy a smaller house, or live somewhere less central. Or, wait another six months or a year before buying. Because prices are going down further. Except in Watsonville and north Monterey county, I think they can’t possibly go down much further there.

Let’s say, though, that you have $20K for a down payment, and you’re fine with a $3,500 monthly payment. You might be wondering about your closing costs – those can be considerable, especially if you are in fact going with FHA financing.

No worries, mate! Put a shrimp on the barbie and let the seller pay your closing costs. Most sellers, if you write them a high-enough offer, will be happy to pay your closing costs. Even in a short sale, and especially if you’re buying a bank-owned REO property. You might even be able to lower your rate by paying a point or two, which is not a bad idea if you’re planning to stay in the home longer than 3-4 years.

It hardly needs to be said, of course – but if you’re planning to buy a house, you’d better plan on being there at least 3-4 years. At least. Real estate is a long-term investment. Not like that crazy silly stock market. 🙂

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