Updated Friday, July 23

Local Weather

Warm to mild for this time of year, with highs in the low 90s this weekend, then cooling into the upper 80s for the week.

Mortgage Interest Rates

Nationally averaged mortgage interest rates continue to remain at their lowest levels in years.  On July 22, Freddie Mac reported average interest rates for 30-year fixed rate mortgages at 4.56%.  Freddie Mac's report assumes a certain amount added for points and fees, and you may be quoted higher rates when you actually shop for a mortgage (As of July 23, Bankrate's comparison of lenders for this area shows an average rate of 4.62%.).  These figures are for low-risk borrowers and conventional 80% loans.

Before you seriously begin shopping for a home that will be financed, make sure you have a good idea of what the loan will cost you.  Your loan costs may include origination fees, points, private mortgage insurance fees if the loan is greater than 80% of the purchase price, impound accounts for your property taxes and insurance, appraisal fees, and "garbage fees" with names you'll think your lender pulled from a hat.  Although the ultimate cost of your loan will depend on fluctuations in the interest rate, your fixed costs and fees can be estimated using a hypothetical down payment and purchase price.

Don't be afraid to shop around for your loan, and don't get so wrapped up in comparing interest rates that you lose sight of loan fees (Generally, those in the "800" section of the Good Faith Estimate.).  A mortgage broker can do your shopping for you and save time and the hassle of multiple applications, but the broker's fee may more than make up for what the broker claims to save (Ask your mortgage broker what his or her fee is and how it's paid.).  Also, some real estate brokerages may offer "one-stop shopping" for your purchase and mortgage; shop around anyway--this practice usually benefits them more than you.      

Local Bank-Owned Homes

Bank-owned homes probably represent the best investment opportunities in real estate today, sometimes selling for 25% to 50% of what they sold for, or would have sold for, at the peak of the market.  But don't assume that a home is a good deal simply because it is bank-owned.  Many bank-owned homes in this area have been sitting on the market for weeks or months because they are not competitively priced. 

A well-priced bank-owned home will usually be in escrow within a week of first appearing on the market, and so to find a well-priced bank-owned home, you need to track listings as they appear on the market.  You can do this by registering on my website's New Listings Notification feature and creating a search that will automatically send you emails of new listings that match your criteria.  For searching bank-owned homes only, be sure to click on the box that reads "Only show me properties that are REO/bank-owned."

As of July 23, there were 158 bank-owned homes on the market in El Dorado County, representing 11.4% of the total inventory (up .1% from last week and .7% from 3 weeks ago).  In the area from Placerville to Pollock Pines, there were 64 bank-owned homes on the market, representing 14.6% of the total inventory (up .5% from last week and 2.9% from three weeks ago).

A word of caution about buying a bank-owned property: When you submit an offer, the bank will invariably respond with a "counteroffer."  In most every case, this will not be a counteroffer at all, but a complete re-writing of the purchase agreement with nearly every provision tweaked in favor of the bank.  Be especially wary of counteroffers that have you agreeing to give up your loan or inspection contingencies--unless you are certain about getting your loan or willing to accept the property "as is", you could lose your deposit money.  Another bank "counteroffer" strategy is to have you agree to use some out-of-town escrow officer who soon begins to act more like an agent for the bank than a neutral third party (AB 957, passed into law on October 12, 2009, prohibits sellers of bank-owned properties from requiring buyers to use a particular title or escrow service.  Banks are circumventing this law by not offering to contribute to the cost of escrow or title services unless the buyer agrees to use its chosen title or escrow service.).  Bottom line:  Make sure you read and understand the counteroffer.  If if has provisions that are unacceptable and the bank won't revise them, move on.

Heading for the Real Estate Auction?

With their sheer inventory of homes and pennies-on-the-dollar minimum bids, real estate auctions seem to hold the promise of getting that first home or investment property at a truly rock bottom price.  But too often, blinding enthusiasm and the desire to win prevail over common sense, and bidders pay too much for a property or walk away with with a forfeiture of their deposit money.  Some things to keep in mind if you're heading for the auction:

* Ask a local real estate agent if the property had previously been listed on the Multiple Listing Service and at what price.  I have seen many bidders at auctions pay more, and sometimes a lot more, than they could have paid had they done their homework and shopped the inventory before attending the auction.  I personally bid on a home at an REDC auction that had been listed on the Multiple Listing Service for weeks, unsold, at $99,000.  At the auction, the high bid came in at $130,000, and with the 5% buyer's premium added, the high bidder had actually bid $136,500 for the property.

* Read the auctioneer's "terms and conditions" to see if it states that your deposit money (typically $5,000) is non-refundable.  If it is, and you are relying on financing to purchase the property, you stand to lose your deposit money if your financing should fall through for any reason (your lender may ask you for documentation you can't provide, the condition of the house may fail the lender's underwriting standards, etc.).

* Realize that the "minimum bid" or "starting bid" price is usually a meaningless term.  For most properties, the auctioneer will have an undisclosed "reserve price", below which they are not authorized to sell the property.  This will really irk you if you are the high bidder on a property, and the auction staff then directs you to a contract table and tells you that the bad news is that you didn't meet the reserve price but the good news is that you can still have the property if you are willing to raise your price.  You can expect this outcome when the auctioneer
finishes the bidding on your property with "sold, subject to comfirmation" or its equivalent.

* The auction firms working today make their money by adding a "buyer's premium" (usually 5% of the purchase price) directly to the successful bid amount.  Don't lose sight of this while bidding!

State of California Tax Credit for First-Time Homebuyers

As of May 1, 2010, first-time homebuyers may be eligible for a tax credit through the State of California.  To receive this tax credit, you must meet the following specific requirements:

(1) You must close escrow on the transaction between May 1, 2010 and July 31, 2011.  If you close escrow between January 1, 2011 and July 31, 2011, you may only claim the tax credit if you entered into the purchase agreement during 2010.

(2) To qualify as a "first-time homebuyer", you must not have owned a home as your principal place of residence for at least 3 years before the date of purchase (date of the close of escrow).  If you are married, you will not qualify if either you or your spouse owned a home during the 3-year period.

(3) The home must be your principal place of residence for at least 2 years after the date of purchase.  Qualifying units include condominiums, cooperative units, and mobile homes.

(4) The tax credit is the lesser of 5% of the purchase price or $10,000.  Thus, for homes costing under $200,000, your tax credit will be 5% of the purchase price.  For homes costing over $200,000, your tax credit will be $10,000.

(5) You must apply the tax credit in equal amounts over 3 successive years (maximum of $3,333 per year), beginning with the year in which you purchased the home.  Credit not used for one year cannot be carried over to the next year.  Also, unlike the federal first-time homebuyer tax credit (now expired) , you will not get a refund if your tax liability is less than the amount of the credit. 

$100,000,000 is being allocated to fund this tax credit.  The program will terminate early if the funds are exhausted before the date set for the end of the program (The Franchise Tax Board reported on July 13 that more than 100% of the available first-time buyer tax credits have been applied for; however, due to the fact that a large number of applications are likely to be duplicate applicatons or are likely to be rejected, the FTB will continue to accept applications until further notice.)  To learn more about applying for the tax credit, visit the website of the California Franchise Tax Board at http://ftb.ca.gov/.

State of California Tax Credit for New Home Buyers

Along with its new tax credit program for first-time homebuyers, the State of California is re-implementing a $100,000,000 tax credit program for new home buyers.  This tax credit is similar to the first-time homebuyer tax credit, except that the requirement that the buyer be a "first-time homebuyer" is replaced with a requirement that the home has never been occupied.  To meet this requirement, the seller of the home must provide you with written certification of that fact.

Loan Refinance and Modification Program

On March 4, 2009, the federal government published guidelines for its new Making Home Affordable Program, designed to make existing home mortgages affordable.  The Program is bifurcated into two sub-programs, the Home Affordable Refinance Program and the Home Affordable Modification Program.

The Home Affordable Refinance Program is designed to help you if you are struggling to keep up with a high-interest rate loan and can't refinance because the declining value of your home has wiped out most or all of your equity (A typical refinancing lender might require a 20% equity build-up, which would effectively become your down payment for the new loan.).

To be eligible for this program, you must be current on your mortgage payments, you must not owe more than 105% of the value of your home on the mortgage (you can be slightly "underwater"), and the mortgage must have been sold on the secondary mortgage market to Fannie Mae or Freddie Mac.

The Home Affordable Modification Program is more complex than the Home Affordable Refinance Program, and is designed to modify your first mortgage if you can no longer afford to make payments and your mortgage was not sold to Fannie Mae or Freddie Mac.

Your lenders participation in the Home Affordable Modification Program is voluntary; however, the federal government is offering lenders substantial incentives to participate and it expects that most will participate.  Unlike the Home Affordable Refinance Program, you need not be current on your mortgage payments to be eligible.

If your lender participates and you qualify for a loan modification, your loan will be modified (through one or more of the mechanisms of extending the term of your loan, reducing your interest rate, or deferring or forgiving a portion of your principal) so that your mortgage payment does not exceed 31% of your gross monthly income.

There are a couple of noteworthy obstacles in getting your loan modified through the Home Affordable Modification Program.  First, the process is slow and congested with confusion and red tape.  If you are in foreclosure and close to a scheduled date for the sale of your home, the sale may occur before you can even get a response to your application (This is especially a concern if a you have already received a "Notice of Sale".).  For this reason, it is crucial to get your application in early if your lender has initiated foreclosure proceedings.  Once your application has been reviewed and approved (which could take weeks), you will be placed on a trial modification and the foreclosure proceedings will be placed on hold.  The second obstacle to getting your loan modified through the Home Affordable Modification Program is that your lender is entitled to do a cost-benefit analysis to determine if the cost of modifying your loan (offset by goverment incentives) would be greater than the cost of going through foreclosure.  If so, the lender need not agree to the modification. 

If you are heading into foreclosure on your primary residence and your loan for the purchase of the property was made between January 1, 2003 and December 31, 2007, make sure that your lender is in compliance with California Civil Code Section 2923.5.  Section 2923.5 requires that your lender contact you and discuss alternatives to foreclosure at least 30 days before filing a Notice of Default (the document that legally begins the foreclosure process).  The Notice of Default must include a declaration that the lender has complied with Section 2923.5.

If you want to take advantage of the Making Home Affordable Program, read up about it and contact your loan servicer.  Some good websites to visit are http://ustreas.gov/, http://www.financialstability.gov/, and http://www.realtor.org/.  You may be contacted by businesses offering to modify your loan for a fee (which can run as high as $2,000), but they can't really guarantee success or do anything that you can't do through your own diligence.

Local Events

California State Fair - July 14 through August 1, Cal Expo, 1600 Exposition Blvd., Sacramento.  Great place to spend the day - fun events, rides, music, deep-fried everything, and wonderful exhibits of California's culture and natural history.  For more info, visit http://www.bigfun/org.

Moonlight horseback ride - Saturday, July 24, 8:30 - 10:30, sponsored by the American River Conservancy.  For more info, visit http://www.arconservancy.org/.