Contra Costa REO real estate sales are at all time highs.  The same is true all over.  REO property is starting to sell as the banks face the reality of the current housing market.

REO property is property owned by the bank because it did not sell at foreclosure.  The bank could not sell the property to cover all the debt encumbered by it, so it is now real estate owned by the bank.  REO property it is called.  According to Dataquick, year over year, Contra Costa REO real estate sales are up over 900%.  There are very very few areas in California, and not many nationwide, that are not in the same boat.

So what does that mean for you as a real estate investor?  If you have been waiting for the time to get back into the real estate market, we’re getting awfully close.  The banks are taking back record numbers of homes.  They know the real estate market is bad, and also do not want to keep these homes on the books.  They are starting to price these REO properties very aggressively in order move them.

According to Dataquick, fourth quarter foreclosures were the highest on record, 31,676.  The previous high, not counting this down cycle, in third quarter of 1996 was 15,418.  With all these foreclosures, and a glut of REO property, we are starting to see an excellent buying opportunity as the inventory and foreclosure activity begin to work their way back towards normal levels.

So are we at the bottom?  I don’t think so, but if you can find the right deal, it doesn’t really matter.  Three years ago, it was not possible to buy Contra Costa real estate for investment purposes and be cash flow positive.  The numbers are starting to shake out, and rents are headed higher, it is now possible to find cash flow positive single family residences in today’s market.  If you can get into a good neighborhood, with a nice property and be cash flow positive, you have the means to sit on that investment property until the market does turn.

Keep an eye on what is out there.  I suggest finding a good real estate agent who can update you as new listings come on the market.  You will have a good idea of what is available, and what the trend in pricing is.  Additionally, you should get financing lined up, so when you do find the property that meets your needs, you will be ready to move on it.  It is always best to get your financing options on the table early on so you know exactly what the numbers will be and whether or not you will be required to bring cash to the closing table.

With the banks holding record numbers of REO real estate properties, the opportunity for investors is here.  Start doing your research now, and you will be poised to take advantage of this unique time in real estate.  As always, feel free to contact me with any real estate finance questions!

Check back in often, I will be writing more about REO properties in the near future, offering my insight and advice.  If you are looking for REO property, or any real estate for that matter, feel free to talk with my wife, a Contra Costa real estate agent.  She can offer resources or refer you to an honest professional in your area.

30 year fixed rate mortgages are soon to become much easier to obtain at the higher loan amounts.  If you have been paying attention to the news, you will have noticed that the economic stimulus package has passed both the house and the senate.  President Bush is set to sign it into effect next week.  What does this mean to you?

Well, if you have an existing mortgage over $417,000, it could mean a lot.  The focus of this package for the real estate industry is the higher conforming loan limits.  For the next 12 months, this limit will be raised to a shade under $730,000.  Many people who could not qualify for the best rates and terms over the last 12 months due to their loan size not fitting in the conforming box now have an excellent option.

Now is the time to get the ball rolling.  Higher loan amounts will now be easier to qualify for, and the pricing will be much better.  If you have an existing loan that is adjustable, or you just want to take advantage of some of the lowest 30 year fixed rate mortgages historically speaking, the opportunity is here.  The new loan limits will expand the debt to income ratio for people who used to be in the jumbo loan category, meaning if you were unable to qualify last week for your jumbo loan due to a high DTI ratio, there is a good chance come next week that you will fit in that box.

Additionally, once this bill is signed, your 30 year fixed mortgage rate could well be lower than what you qualify for today.  For people looking to purchase, even first time homebuyers, this gives you additional buying power.  100% financing on a 30 year fixed rate mortgage is realistic all the way up to the new conforming loan limit.  You no longer have to stay at $417,000 to obtain this 100% financing.

This is great news for the real estate market, and anyone who has been shopping for a loan.  If you would like more information, or to see if you qualify for some of the lowest 30 year fixed mortgage rates in history, please feel free to give me a call.  I can help with your 30 year fixed mortgage transaction in California, whether a refinance or a purchase.  Don’t delay, remember, these new limits could go away after the 12 month period.  Contact me for more information for your California home loans today.

Why can’t I qualify for a loan?  I get this question from borrowers a lot these days, with the tighter lending standards and the demise of no doc loans.  In addition to credit factors and loan to value issues, one of the major issues today is the DTI ratio.  I believe it is important for borrowers to have as much information as possible about their transaction, and to understand some of the issues they may face in obtaining a loan.  Here is a quick rundown on DTI ratios, how to calculate them, and some ideas to reduce yours.

DTI stands for debt to income.  The debt to income ratio is the ratio of your income to your debt.  Typically, this ratio needs to be at 45% or less, although there are a number of circumstances that will allow for a higher ratio, sometimes as high as 60%.  The calculation is not hard to figure. 

Take your annual income, this is pre-tax, not take home, and divide it by 12.  This is your monthly income.  Next, take all of your monthly debts, car payment, property taxes, insurance and the minimum payment due on your credit cards (you do not need  to include utilities, etc.) and add them up.  Divide your total monthly debts by your total monthly income and you have your debt to income ratio.  So if you make $72,000 a year on a salary ($6,000/month), and have $3,000 in monthly debt, your debt to income ratio is 50%.

When calculating your DTI, you can use your existing mortgage payment to get a rough estimate.  When we calculate it for home loan purposes, we are going to use the new, proposed loan payment.  If you want to estimate what it would be, you can use our online mortgage calculators to get a good idea. 

If your DTI is high, chances are you will have a tougher time qualifying for a loan these days.  To reduce your debt to income ratio, you typically either need to reduce your debt, or increase your income.  If you have a car loan, or multiple car loans, refinancing those loans can reduce your monthly debt.  If you are a member of a credit union, often times you can get pretty good terms.  If you have liquid assets, paying down your credit card balances will also reduce your debt. 

These days, another option for reducing your DTI is getting your property taxes reduced.  This can be a big one, with property values falling, you may be able to save yourself a decent amount of money each month by doing this.  You typically need to contact your county assessor’s office, and they will let you know what paperwork you need to submit.  Talk with a local realtor, see if they will pull comps or put together a market analysis for you to substantiate your homes current value.  If you are in the area, you can contact my wife to put together a market analysis for Contra Costa real estate.

Hopefully this has been informative, please feel free to contact me with any questions on this subject, or any other related to real estate finance.

How do you know if a refinance is a good option for your situation?  The best way is to talk with a mortgage professional.  By doing so, you can look at many different options that fit your particular situation.  Your financial position and your credit rating will have a direct impact on the type of refinance terms you can qualify for.  By talking with a professional directly, you will have accurate numbers and will be able to compare the cost of refinancing to the benefits. 

You can also use our mortgage calculators online to see if a refinance has the potential to better your situation.  You can play with the numbers, rates, terms, etc. and have a good idea of what would be a benefit for your situation.  If you are in an adjustable rate mortgage currently, now is an excellent time to explore a fixed rate solution.  Rates are once again near historic lows, and even though lending standards have tightened, the climate has created a great opportunity for credit worthy borrowers to take advantage of.

In general, you are going to have costs associated with any refinance. This is known in the business as points and/or closing costs, where every point is equal to one percent of the total amount of the loan.  There are options available for no point, no cost refinance transactions, but you should compare the terms of these loans to the terms on loans that do carry fees.  Typically, you are going to end up with a higher rate if you choose a no closing cost type of loan. 

Additionally, it may be beneficial to look into paying additional points to lower the rate.  Many borrowers do not see the benefit of paying points, but it is a very good option for many situations.  For example, if you are refinancing into a 30 year fixed mortgage, and you plan on staying in your home for a period of time, it may be beneficial in the long run to pay additional up front fees in exchange for a lower interest rate and monthly payment for the life of the loan.  Your mortgage professional can lay these numbers out for you so you are able to make the proper, informed decision that meets your needs.

As always, feel free to contact me directly with any questions.  If you are a California home owner looking into refinancing options, I can help find the best solution for your needs.

Do you have collections showing on your credit report?  Are they dragging your credit score down?  Even if the collections are legitimate, there are steps you can take that will minimize their impact on your credit score, or even get them removed altogether.

First things first, you need to identify who is handling the collection account.  This is normally not the same organization you originally owed the debt to, but a third party.  These third party groups purchase blocks of collection accounts for pennies on the dollar, and then attempt to collect on them.  This can work to your advantage.

On your credit report, you should be able to gather some important information.  You will find the contact information for the collection agency.  This is either under their name on the actual collection line item inside your report, or it is at the end of the report.  Depends on the report.  You will also find the dollar amount originally owed.

Once you have the dollar amount owed and contact information for the collection agency, give them a call.  Your game plan is to get this item removed.  It’s going to cost you some money, but if you do it properly, your collection will be removed.  When you call the collection agency, you want to offer them a portion of the actual debt.  They bought this debt for less than face value, many times you can settle for about half of what is owed.  That is only half of the battle, though.

In addition to agreeing on a dollar amount to settle the debt, you also want an agreement from them to remove the item from your credit report.  You want them to agree to this before you send your payment in.  You also want this agreed to in writing.  Before you send your payment in.  If you don’t make this specific agreement, they will normally just report to the credit bureaus that your collection account is paid.  You don’t want it marked paid or settled when trying to repair your credit, you want it removed.

These collection agencies will not always be willing to remove the item from your credit report.  When you run into this situation, you have a couple of choices.  If you are interested in credit repair for the long haul, it is still best to get the account settled and paid.  If they refuse to remove the item in question, negotiate on the payoff a little harder.  Remember, they bought this collection in a large block of other collections for a fraction of what you owe on it. 

If you are looking to repair your credit for the short term, and I see this a lot in home loan applications, you should not pay your collection off if they will not remove it from your credit report.  This is especially true for older collections.  In the long run, paying these collections off will help your credit, but in the short term, it will not.  If you have a collection that is 4 years old, it is impacting your credit score less than if you were to pay it off.  Huh?  Let me explain.

Credit scoring weights the most recent 12 months of credit history heaviest.  The older the item on your credit report, the less weight it carries.  If you have a collection that reported 4 years ago and you pay it off, your credit will suffer short term.  The reason is that the collection agency will report to the credit bureaus that this collection has been paid.  It sounds like a good thing, but it is not.  It is a new item, very recent and weighted heavily.  Even though you are taking care of a debt, it is still a collection being paid.  The credit bureaus will ding your score because this is a new item being reported associated with a collection account.  Your credit will actually be worse than if you just left it alone!

With that being said, you should still pay it at some point, and often times this can be done through escrow at the closing on home loans.  This way, you improve your credit report for the long haul, while not shooting yourself in the foot short term (since you have already obtained the loan you are after when you pay this item).

Hopefully this has been helpful, check back in often for more great articles!