Orange County FHA, VA & First Time Buyer Loan Information: Tim Storm, Orange County FHA and VA Home Loan Specialist (Fairway Independent Mortgage Corporation)

My goal is to provide valuable information for home buyers, both First Time Buyers and Move Up Buyers. This information will be about loan programs such as FHA ,VA, Conventional Fannie Mae and Freddie Mac, Reverse Mortgages, and even Portfolio Jumbo programs. I will also touch on tax advantages of homeownership, Rent vs. Own analysis, and any other aspect of loans and home ownership that will be of interest to Orange County home buyers and homeowners.

How Much Will Orange County, CA Home Purchase Power Increase with a Drop in Interest Rates?

So how much of a difference will a significant interest rate drop make for Orange County, CA home buyers? For some people it will be a mean lower payment. For others, the increased buying power will afford them a better home, extra bedroom, bigger yard, or whatever it is that will meet a home buyers needs.

It is estimated that a .5% drop in interest rates will result in approximately a $15,000 to $25,000 higher purchase price without increasing the monthly payment, depending on the actual purchase price the buyer is targeting.

Below are 3 scenarios, each based on an FHA loan, which only currently only requires a 3% down payment. Effective January 1, 2009, FHA will require a 3.5% down payment. FHA has become the loan of choice for Orange County, CA home buyers who have less than 10% for down payment.

Scenario #1

Let's assume John and Lisa make a combined $6,000 a month in gross income. They will be able to get a loan from their 401K for the down payment and plan to have the seller pay closing costs. They would qualify for a purchase price of approximately $325,000. (See image to right.) At a rate of 5.5% (5.682% APR) the total payment, including taxes and insurance, would be $2,357. With a rate drop of .5% to a new rate of 5% (5.196% APR) they would be able to buy a $340,000 home and still have the same payment.

If they chose to stay with a $325,000 price, then their payment would be approximately $100 less, or $1,200 per year.

Scenario #2

Let's assume Mike and Sally make a combined $8,500 per month. Their down payment will come from a combination of savings and gift from family. At the same 5.5% rate, they would have a payment of $3,263 if they bought a home for $450,000 with 3% down. But with a rate of 5% their purchase price would be $470,000 while still maintaining the same payment. I nice $20,000 increase in purchase power. The payment savings would be $137 per month if they decided to stay at the same price.

Scenario #3

Now let's assume Carl and Susie are looking to purchase a home in Irvine, CA in the $600,000 range. Their combined income is $12,000 per month, and at a rate of 5.5% their total payment would be $4,351. A rate drop to 5% would allow them to increase their purchase price to $625,000 without increasing their monthly payment. A $25,000 increase in purchase power. If they decided to stay with the same price, their monthly payment would be $183 lower.

Interest rates have already come down significantly over the past few months and now is a great time to buy a home. Low mortgage rates are already increasing the number of home buyers making offers for the first time. This is the first time in many years in Orange County, CA that a renter can look at a Rent vs Own analysis (with a 30 year fixed rate and 3% down), and without making outrageous assumptions, see the huge advantage of owning a home.

Authored by Tim Storm, CMPS, Sr. Loan Officer with Home Point Financial, a Direct Endorsed FHA Lender located in Orange County, CA.  Direct line 949-829-1846.



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Comment balloon 1 commentTim Storm • December 04 2008 07:52PM
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