What’s a FHA Home Loan?

FHA is the Federal Housing Authority, under jurisdiction of HUD – Housing & Urban Development. What they do is provide insurance for lenders to give borrowers home loans at reduced down payment and credit score levels.

From HUD’s website:

The Federal Housing Administration, generally known as “FHA”, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.

They don’t actually lend the money. You go to a regular bank or lender that is approved by the FHA. For example, BofA, Wells Fargo, Guarantee Mortgage, & First Capital Group are local San Francisco home loan options for FHA.

Why Get a FHA Home Loan?

The most common reason a buyer would choose a FHA loan over a conventional mortgage is the lower down payment requirement. You can buy a home with as low as 3.5% down payment vs. the typical 20% down for a conventional loan. Of course, there are great 10% & 15% down payment options from conventional lenders now available. They briefly went away during the financial crisis but are back.

In San Francisco, the real estate market has really picked up. Multiple offers are again commonplace and prices are on the rise. You may feel that the real estate will appreciate faster than your savings account and you want to buy your starter home before you are priced out of the market.

As a new client said to me yesterday, “I’m already paying sky-high San Francisco rents and feel comfortable with the payments. The mortgage payment even with the insurance isn’t going to be much different. And then, I get tax savings, home equity appreciation, and the pride of being a homeowner in this expensive city.”

The other reason you might choose a FHA home loan is because your credit is less than stellar. You still need to qualify – have a job, have some reserves, be able to afford the payments – but you can get away with more blemishes on your record and a lower FICO score.

Another bonus is that FHA allows non-occupant co-borrowers, meaning that you can buy with the help of someone (say Mom or Dad) who is not going to live in the property but in order to qualify, you need to include their income, credit, or money.

What’s the Downside?

First, you will pay FHA mortgage insurance which becomes an added closing cost and monthly payment. FHA is insuring your lender for your lack of a full 20% down payment so, of course, they expect you to pay for it! Keep in mind, that you will have mortgage insurance for any loan with less than 20% down, for example, with one of those cool 10% down loan I mentioned earlier.

Second, there is a maximum loan amount dictated by FHA. In San Francisco, you can borrow up to $729,500 for a single family home and $934,200 for a duplex. Here is a complete list of FHA loan limits for California by County. Your purchase price is the loan amount plus your down payment. As you can imagine, this eliminates a lot of our housing stock. Yet, there are many places you can buy and we have helped dozens of FHA home buyers in recent years.

Third, the property you buy must be FHA-approved. This is easy if you plan to buy a single family home and a bit more challenging for a condo. All single family homes should qualify unless they are really intense fixer-uppers. (Though FHA does have a fix-up loan product.) With condos, it’s a bit trickier. It’s the building’s HOA – Home Owner Association – that must qualify, meaning it’s the building rather than the individual unit. Many newer construction buildings through San Francisco neighborhoods like Mission Dolores, South Beach, South of Market, and more are FHA-approved as are some smaller buildings.

Which Condos are FHA-Approved?

For a quick and dirty peek at currently FHA approved San Francisco condos, check out HUD’s website. But keep in mind, that this list is not all-inclusive. If you align yourself with a FHA savvy lender and Realtor, we can help walk you through the process and your best options.

Happy house hunting!

-DL

Per the Wall Street Journal, the 5 signs that say ‘buy’ a home are jobs, recent sales activity, construction, mortgage availability, and anecdotal evidence.

1. Jobs – Forget the national reports. Are local companies hiring? Are start-ups going public? Is the mood generally positive or negative about the San Francisco job market?
2. Recent Sales Activity - Check local neighborhood-specific real estate data, using the Zephyr Real Estate website where you can check stats by MLS sub-district. Be careful to avoid analysis by zip code or tax record as they information will be too broad and not up-to-date. When we have our initial home buyer strategy session, we look at the CMA (Comparative Market Analysis) for the specific neighborhood of interest to the home buyer. Lately, I’ve noticed more recent sales than active listings.
3. Construction - This is tough in San Francisco because frankly, there isn’t much land left and yet, is construction happening? Are new condos selling? What’s the local scoop?
4. Mortgage availability – How easy or difficult is it to get a home loan? In San Francisco, it’s important to pay attention to the jumbo home loan market which, according to our Lender partners, seems to be loosening up albeit slowly.
5. Anecdotal evidence - This is the one time I recommend you actually listen to the talk at the water cooler! What’s the general vibe? Are your friends and coworkers feeling good about the economy? In San Francisco, our world kind of revolves around technology, right? My friends in tech are feeling positive, how ’bout yours?

Trulia published a very helpful blog post about the process of buying your first home. I devote a lot of blog-time to first time home buyers in San Francisco because helping you is a particular passion of mine. My impression is that the more information and insight you get up-front, the more you understand what to expect and when, the more enjoyable and successful your home purchase will be.

Here are the highlights but please read the entire post on The Suprising Insider Secrets for the 5 Stages of Buying Your First Home.

The 5 Stages of Buying a Home per Trulia Advice that, of course, we agree with! (Note my personal emphasis in parenthesis. Kind of rhyme intended.)

Stage One: Deciding Whether It’s The Right Time to Buy.
Insider Secret: (Whether you are in Bernal Heights, Noe Valley, or Pacific Heights,) the market is the least important factor you should consider when deciding whether and when to buy a home.

Stage Two: Getting Pre-Approved (at the beginning of your house hunt).
Insider Secret: Working with a mortgage broker referred by your real estate broker or agent may save you money.

Stage Three: House Hunting
Insider Secret: “Distressed” doesn’t always equal “discounted” – in some cases, a “regular” sale can be a deeper deal. (And to this that the majority of so-called short sales will never close escrow. We work in the distressed home market & have negotiated plenty of short sales, foreclosures and bank-owned REO properties. We can spot the situations with the best and worst chance of working out for the buyer.)

Stage Four: Negotiations
Insider Secret: Your family and friends can cause you to lose your dream home.

Stage Five: Escrow, Inspections and Underwriting
Insider Secret: It’s critical that you attend your home inspections. (And have them! With very few exceptions, we recommend that a buyer have their own professional home inspection.)

More posts related to San Francisco first time home buyer tips & advice:

• 10 Things to Remember When Buying a Home
• The Process of Buying a Home in San Francisco, Specifically
• 2011 Home Buying Resolutions
• Loan Preapproval Process – What documentation is needed for a home loan application
• How Many Homes Should I See Before Making an Offer?
• Loan Preapproval Before Open Houses
• A Brief History of the 30 Year Fixed Rate Mortgage

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Dolores Plaza Condos is a condo complex in an uber-cool & convenient location with entrances at 360 Guerrero Street between 15th and 16th Streets and 1839 15th Street between Dolores and Guerrero. Yup, it’s an 80s building but wait, this place is modern, hip, spacious, and just totally fabulous.

Um, hello, we’re talking hardwood floors, open floor plan, remodeled kitchen and bath, wood-burning fireplace, amazing closet space, shared laundry down the hall, gym facility, courtyard, deeded garage parking and GUEST PARKING a block from Valencia Street! 98% Walkscore

Perfect for San Francisco first time home buyers! As low as 3.5% Low-down payment available. FHA-APPROVED!

The seller put a lot of work and money into remodeling the top floor condo and it shows.

NOTES ON THE REMODEL:

Kitchen:

• Counters, back splash, shelving, cabinets, appliances in kitchen
• Opened up the wall between kitchen & main living area.
• Replaced florescence light with recessed lights in kitchen & entry

Bathroom:

• Bathroom shelving, marble in shower and associated hardware
• Light fixture, mirror, and counters/cabinets in bathroom

General:

• Build-in shelves in the nook beside the fireplace
• Resurfacing the walls & ceiling (previously “orange peel” texture)
• Solid wood floor throughout the unit
• Fan/light fixture in bedroom
• Dining area light fixture

And here’s a note from the Seller…

Living here has provided a great balance! It has incredibly convenient access to all the great things nearby, but also a wonderful place to host my friends for dinner parties and quiet evenings at home. I’ve taken advantage of the location near so many great restaurants and bars to easily lure friends over this way for a night out, and savored the convenience of my getting home at the end of the night. It’s been fabulous to walk up to Tartine to get treats for a friend’s brunch; to indulge in the fantastic food and service at Delfina; or knowing that I could skip the crazy line at the Bi-Rite Creamery by getting a pint in the Bi-Rite store when I headed to hang out in Dolores Park with friends on a sunny weekend.

Remodeling my unit created a beautiful home for cooking up meals with things bought from local farmer’s markets, a cozy place to watch a movie by the fire, or simply appreciate the beauty of the view – especially during the fireworks on the 4th of July or clear days when you can see over the neighboring buildings to the East Bay hills, Potrero, and Bernal Park.

This neighborhood and Dolores Plaza has been such treat to live in.  I was incredibly lucky to have fantastic neighbors.  We’d get together for wine and I loved when they’d enthusiastically stop by & mix with my other friends when I hosted events catering to neighborhood activities like the Dolores Park movie nights or the Sister of Perpetual Indulgence’s Easter craziness.

The location was convenient when I worked downtown via Bart and on the Peninsula with the quick access to 101.  And, it was a joy to come home & always know that I had a parking space waiting for me when I came back from socializing or even just a long day at work. I will dearly miss all the perks this home has offered and hope that it provides as much happiness to the next resident. And, did you see the bedroom closet… I can still remember day dreaming about it when I was buying the unit!

For the full scoop, check out our San Francisco real estate website for first time home buyers and/or the property’s website with full photo tour and showing information for Dolores Plaza condos.

I have two things to say about this.

1. Perhaps, the list price was a bit on the aggressive (low) side. Ya think?!

(This strategy of listing low to generate interest works really well for home sellers but can be frustrating and upsetting for buyers. Keep in mind that the list price is NOT market value…it could be too high, too low, or just right. Learn the local market, work with an expert real estate professional, like us of course, and remember if it looks too good to be true…

2. All real estate is super local and in choice San Francisco neighborhoods like Bernal Heights, there is high demand for real estate.

So when you’re out buying a home make sure you understand the local market for your specific neighborhood of interest. How many active listings are there? How many have sold in the past 3 months? How many listings are act.cont. or pending?

If there are more homes in escrow and recently sold than there are currently available & on the market, then there is more demand than supply for local San Francisco real estate. This is not Las Vegas. We do not have miles and miles of new construction to choose from. This is San Francisco and in this case, Bernal Heights, and you gotta play to win.

But fear not…prices are still down from the peak (for now) and interest rates are extremely favorable. It is a great time to buy a home. This particular north slope Bernal Heights home will sell in 2011 for less than it did in 2006 (but not by much). The reality is that there is stiff competition but as a San Francisco first time home buyer you are still making a smart long-term investment move. Again, this is not Las Vegas.

One final word on this Bernal Heights listing that got 17 offers – this means that 16 home buyers are still on the hunt for that elusive single family home priced under $800,000. Yikes.*

* If you own a home in Bernal Heights and are thinking of selling, this is very good news. Research the local Bernal Heights real estate market.

Right now (and for the past couple of years), we’ve been in that strategic zone for buying a home in San Francisco, whether a condo in Noe Valley, a Soma loft or a Bernal Heights single family home. No matter if you’re a first time buyer or a homeowner looking to trade up into a bigger home in a new neighborhood, ideally, you want to buy when the market is down and/or interest rates for home loans are low. Well, guess what, folks? Both are true right now and it’s kind of unusual to have them together.

But back to home buying in the zone… this weekend Kathleen Pender’s Net Worth column in the Business section of the Chronicle offered 11 Tips on Saving, Spending for 2011. #2 is Don’t be Greedy and is directly about this point of trying to buy in the zone rather than trying to time the market perfectly.

“If you’re thinking about purchasing a home but you’re waiting for further reductions in price or interest rates you’re setting yourself up to miss a great opportunity. Don’t be greedy. If you find a home you like, that you can afford (and only you can make that determination – not the broker) and you can get 30-year, fixed-rate, fully amortized financing for anywhere near 5%, go for it. The market can move on a dime and those who wait will be left in the dust.” – Rick Harper

Is buying a home in San Francisco on your resolutions list for 2011? If so, there’s no time like the present to get pre-approved for financing and begin the house hunt. And, if it’s not on your list but you have good income, stable employment, and think you want to stick around San Francisco Bay Area for the next 5 +/- years, maybe it should be.

Be, do, have.

Contrary to popular belief, the holiday season is an excellent time to be a home buyer whether you are a first time buyer looking for a SoMa loft or Mission TIC or a homeowner looking to trade up out of their starter condo and into a Bernal Heights or Noe Valley single family home for sale.

Why the holidays are a great time to shop for a home and why you’re going to start your house hunt now and NOT wait until tax time next year:

1. You’ll get a better deal on your home.

   • The average consumer thinks there is some sort of seasonal holiday shut-down in the real estate market but you are not the average home buyer. In reality, we do not have a harsh winter here in SF (at least not during the actual winter months). The real estate market hums with buyers buying and sellers selling all year long in the Bay Area. Yes, our busiest SF real estate markets are during the Autumn and Spring but as a home buyer, busy means competition and competition means higher prices. If you are a San Francisco home buyer, busy is not always better.

2. You’ll deal with serious sellers.

   1. In today’s real estate market, there are plenty of non-serious sellers. They don’t have a real motivation to sell so they’re happy to “test the market,” price like it’s 2006, close their eyes, run their Realtor ragged, and hope for the best.  These are not the sellers a serious buyer wishes to encounter.
      1. But the typical holiday season Seller is motivated. Sellers are either serious or exhausted if their home is on the market during the Winter. Serious sellers mean realistic list prices and motivation to negotiate with serious & qualified (preapproved) buyers.
      2. Generally, I see 2 types of San Francisco listings for sale during the holidays (which is roughly November to January). *
         1. The Exhausted Seller, i.e. the leftover inventory of homes for sale from the Fall market
         2. The Motivated Seller, i.e. the seller who has a true motivation to sell.
            • The source of their motivation can be varied — a tax benefit if the escrow closes before the end of the year, or,  a new baby on the way which means more room is needed quickly, or,  relocating out of San Francisco to start a new job in January.  Motivation means the home is priced realistically and the seller is willing to entertain serious offers from preapproved home buyers.

If you’re thinking of buying your first home in San Francisco in 2011 but you’re financially ready now, consider starting the home search now. If you find the right home for you during the holidays, you’re certain to benefit.

Quick sample of current SF real estate inventory for sale:

• 49 single family homes for sale in Bernal Heights.
• 18 Noe Valley house listings for sale & 18 condo listings in Noe Valley
• 59 condo and loft condo listings in SoMa South of Market
• 9 Hayes Valley condos
• Get a neighborhood specific real estate market report for any San Francisco ‘hood.

* Worried about a lack of inventory?

For the reasons above, you will notice more inventory (and competition) during the Spring BUT most of these home sellers already know that they are going to sell next year and are preparing. For example, I’m currently working with multiple Noe Valley home owners who plan to list and sell their home in 2011.

As a home buyer, if your buyers agent works with a large Broker, like I do with Zephyr Real Estate,  and is a member of the San Francisco Top Agent Network, as I am, you’ll have access to most of the listings that are coming soon in the new year.

Why? Because we take them on as a “pocket listing” (not on the public MLS) during the holidays and show them by appointment to serious home buyers. My home buyer clients are able to access this underground inventory of pocket listings throughout all price ranges, property types and neighborhoods.

Question: What will those pesky banks ask for (or what documentation is needed for a home loan application)?

When you are buying a home in San Francisco, one of the first steps is loan preapproval.

It’s time to assemble your team (Realtor and Mortgage Broker). Keep in mind that there is a lot of smoke and mirrors in the mortgage market. It’s absolutely crucial to work with a really good, reputable mortgage broker. Here is a list of trustworthy, local San Francisco mortgage professionals who can help figure out your accurate purchasing power in today’s market so you know exactly what you can afford in a home and how much it’s going to cost.

In order to get preapproved for a home loan, you’ll need to provide documentation and complete paperwork. Yes, this part is annoying but long gone are the days of the NINA (No Income, No Asset Verification) so you’re going to need to prove yourselves before getting the dough. It’s it amazing that, at one point in the not so distant past, you did not need to verify your income or assets to get a mortgage? And we wonder…

Thanks to our Team Zephyr Real Estate colleagues at Guarantee Mortgage, we’ve compiled a cheat sheet of the documentation you’ll need to get preapproved for a mortgage in San Francisco. Note: this is a general list so all items may not apply to you. Talk to you mortgage broker to find out the specifics for your situation.

To get preapproved, start compiling copies of the following to verify your income and assets:

1. Employees:
   1. 2 most recent pay stubs
   2. W-2′s for 2008 and 2009 (or the past 2 years)
2. Self-Employed, Independent Contractor or other alternative type of income earner
   1. Last 2 years’ tax returns
   2. YTD Profit and Loss Statement
3. 2 most recent statements for any/all banking accounts, CD, money market, and/or securities brokerage accounts
4. Most recent statements for all retirement accounts, (IRA’s SEP-IRA’s, 401-(k)’s or 403-(b)’s )
5. Any and all 2008-2009 (or past 2 years) k-1′s partnerships returns (1065′s) and/or corporate or S-Corp, returns (1120′s or 1120-S’s)
6. Mortgage, real estate tax and insurance premium statement for ALL properties currently owned
7. Leases on ALL rental properties you may own
8. Complete bankruptcy papers, if applicable
9. Divorce decree and settlement statement, if applicable
10. Name, address and phone number for your landlord(s) covering the past 24 months
11. 12 most recent canceled rent payment checks or bank statement in your landlord is a private party
12. Copy of your state issued driver’s license or passport and your date of birth to satisfy Patriot Act requirements
13. If not a citizen: copy of resident alien card (front and back); resident alien application or H1B or L1 Visa Passport

That is a long list but keep in mind that not everything will apply to you. The concept of loan preapproval is to look at the full, accurate picture of your financial situation so you can figure out your purchasing power in today’s San Francisco real estate market.

When you know exactly what you can (and cannot) afford, we’re best able to be your trusted San Francisco Realtor and show you only the most relevant properties that meet your needs and budget whether that means a view condo at the Infinity or a starter condo at 555 Bartlett.

Looking only at homes you can afford will make you a savvier home buyer because you’ll fully understand pricing and market value specific to the homes in your price range. From this vantage point, you’ll know you are making smart, easy decisions for yourself!

Average and approximate interest rates on the 30-year fixed rate home loan*:

• 1981 = 18.45% (Holy crap.)

• 1991 = 9%

• 2001 = 7%

• October 2010 = 3.875% (with 1 point) or 4.25% without

• October 2011 = ?

Will interest rates be lower or higher next October? Check back next year and find out, but here’s a sure bet: interest rates are amazing NOW and prices are down for San Francisco real estate (a rarity). We’ve suffered through a deep, dark, and lingering recession. It’s time to make lemonade.

Who should make a move now? San Francisco first time buyers and so-called “move up” or “trade-up” buyers. Move-up buyers are folks who have grown out of (or just sick of) their starter home, loft, condo, or TIC. We won’t see prices like this again. (OK, the End of Days is hard to predict but I’m pretty certain.)

Now is the time to suck it up and sell your current home at the reduced market value and buy the home you really want at a serious discount. Looking back in 5 years, as you relax on your sunny deck in Noe Valley, in a home with enough room for you and your family, increasing your equity every year by paying 3.875% interest on a 30 year fixed rate fully amortized home loan, you’ll be VERY happy you took the leap of faith and sold your starter home.

(Even my own accountant is encouraging me to do this! )

Check out an example of why it makes sense to trade up in a down real estate market.

* Thanks again to the fabulously competent, professional and friendly Guarantee Mortgage Zephyr Real Estate team of San Francisco home loan consultants and in particular, Pete Elting for providing this valuable information for first time and move up home buyers in the San Francisco Bay Area!

Unless you just cashed out your Google stock (and we’re an early hire), you’ll probably need to get a home loan in order to buy your first home in San Francisco. As a San Francisco first time home buyer, in order to get a mortgage with the lowest interest rate and the best terms, you’ll need to have CREDIT, and good credit at that!

Let’s say you have good credit*. You’ve done the right things, some of which may seem illogical…

Side note: For example, did you know that in order to have good credit, you need to actually have some debt (and pay it regularly and on-time)? Over the years, I have helped more than a few clients who thought that by staying credit card and debt-free, buying what they need in cash or with their debit card, that they were doing the financially responsible thing…and that their reward would be the so-called good credit of the debt-free. Think again. If you don’t have an unsecured credit card, go get one. You don’t have to use it regularly and certainly, this is not an invitation to go crazy shopping at Barneys. Think always, “What would Suze Orman do?” But, go get a credit card, use it, and then pay it monthly and on-time.

Back to the topic at hand.

You have good credit.
You’re employment is relatively stable.
You saved a down payment.
You are ready to buy your starter home in Bernal Heights or your designer condo in Mission Dolores.
You got preapproved for a great home loan through a local, reputable mortgage broker or banker.
You’ve chosen your SF Realtor.You went house-hunting.You made an offer.You are now in escrow.
Think you’re sliding into home (pun intended), don’t you?

Think again and do not, we repeat, do not do the following things when you are purchasing a home.**

1. Avoid moving you money around from one account to another.  If you need to move money, establish a complete paper trail of the money leaving one account and entering another.
2. Any deposits of large money (including gift money from relatives) into any account need to be sourced by making a copy of the check and deposit receipt, or the wire transfer order.
3. Avoid making a large purchase on credit or allowing your credit to be run, i.e. by a car dealership. Just wait to buy that Mini until AFTER the close of escrow.
4. Do not close any credit card accounts or credit lines – call your mortgage broker before doing anything regarding your credit.
5. Avoid changing jobs – especially if you are in escrow.
6. Avoid extensive travel during your escrow period. (Although, in our experience, when you are buying or selling a home, especially in a jet-setter locale like San Francisco, one of the main characters (buyer or seller) will go out of town. Don’t fret. We can coordinate home purchases or sales from anywhere in the world. It’s real estate 3.0, yo.)

Of course, life goes on even when you are in escrow to purchase your first pad (Noe Valley condo, Soma loft, Bernal Heights house, Mission Dolores duplex, etc) so just keep your team (Realtor and Mortgage Broker) informed and don’t make any major financial decisions without letting us know.

* Don’t have good credit…yet. Here are some tips on how to build good credit so you can qualify for the best home loan rates and terms when you decide to buy a home in SF.

** At Zephyr Real Estate, we’re blessed to have the ongoing help of some of the most experienced, knowledgeable, and competent mortgage brokers in San Francisco. Our Guarantee Mortgage team of home loan specialists rock and you’ll be well-served to work with any of them. They help us stay informed and provided us with this list of what NOT to do when buying your first home in San Francisco.