Entries Tagged 'Real Estate' ↓

Amidst the housing crisis I have read many stories about how many immigrant minorities were “duped” into borrowing ridiculous amounts of money for homes that they could not possibly afford.  An example that is often passed around is of the strawberry pickers who bought a home priced over $700,000 on a $15,000 annual income.    I cannot say that I understand the motivation of this family on buying such an expensive home, but I can speak from my experience as a Chinese immigrant as to why the “American dream” of homeownership could be so alluring and so destructive.

First of all, most Chinese immigrants I know are pretty frugal about everything except for their homes, cars, and their kids’ education.  Amongst the adults in my parents generation I think most do not go on expensive vacations, eat out  a lot, or buy very expensive clothes.  As a result, their idea of home affordability is a lot higher than 38% of their incomes.  Several people have said to me that Chinese people do not really care about spending more than 50% of their incomes on a mortgage, and I have found that to be true in many instances.  As  a result many people buy a lot more than they probably should have.  I have also  heard the same logic from some first generation  Asian Indian coworkers in the past.  Basically, they can afford the expensive house because they save on everything else.  Usually for married couples this is usually fine until one person loses his or her job.

Another cultural dynamic  that skews how affordable a home is for many immigrants is that many adult children , parents, and other family members are expected to pool their money together towards buying a house.  I know many people my age who own homes due to parental contribution, or some are living with their parents and helping to pay for the mortgage.  In the case of the strawberry pickers it seems that several families pooled together to afford the ridiculously high mortgage.  I think this arrangement is a lot less common in non-immigrant Caucasian American families.  Again, this could work if all family members are committed to paying for the debt and they keep their jobs, but otherwise it could be disastrous.

Next, Chinese culture has a big thing with something we call “face” or mianzi.  It essentially means that you have to project how successful you are to others.  In America I guess it is called “keeping up with the Joneses”.  Having a big beautiful house in a nice school district is a big part of having face.  It is something you can take pictures of and send back home to China and it is also something you can show off to friends and family via dinner parties.  Having face also includes having successful kids, and sometimes a nice car, too.  The value of face is priceless for a lot of Chinese people, and they are willing to sacrifice financially for what is essentially bragging rights. I remember a friend telling me once that all her parents spends on is their house and their expensive car, and they do not seem to enjoy life at all because they have no money left over to take vacations.  However, having that house and car seems to add to their self worth even though she thinks it is pretty superficial.

Finally, I think homeownership is so ridiculously appealing to all immigrants because it is a form of assimilation.  It is saying to the world that you own a little piece of America and you are part of something bigger.  Most  immigrants I know do work really hard for what they have, and it is pretty sad when they lose it all, but ultimately those who are in foreclosure now are responsible for their own decisions.  There were definitely shady real estate agents and mortgage brokers that targeted immigrant populations in this crisis, but I think many immigrants lost their usual conservatism and frugality when they were mesmerized with the idea of owning a home.  I know many immigrant families are still plodding away by pooling their incomes for huge mortgages these days, and I applaud them for being responsible, but for those who are draining their savings perhaps it is better to walk away and  start over again.

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Today I read a headline “Echo boomers a lifeline for embattled housing market“.  At first I raised my eyebrow wondering what exactly an “echo boomer” is, and then I read this article and I thought it was hilarious.  Apparently echo boomer is another label for children of the baby boomers.  Haven’t we got enough labels already?

So the gist of the article is that a Harvard study said that  my generation is entering  a stage of peak home consumption and will shore up the housing market.   The problem with this conclusion is that they did not account for how many people in the “echo boom” generation already own homes, and how many already lost homes to foreclosure and cannot recover for seven years.  However, the study did acknowledge that the real income of my generation is much lower than the prior generation so the affordability of homes is much lower.  Additionally, younger workers are suffering more in the midst of high unemployment, so buying a home is even more out of reach due to the lack of jobs.

However, I agree that eventually our generation will be the ones that soak up the excess housing inventory on the market now, but that is almost the same as saying “the sun rises in the east”.    It will take time for homes to be affordable enough for my generation to buy en masse.  Some of my friends have an attitude of, “I am not going to be stupid like my parents and rush into home buying”, and even those who have parents with huge capital gains on their homes believe that it is still too expensive to buy a home at the current valuations.  Also I have seen a trend of frugality as being the “in” thing to do now so many are seeking a deal or just staying put.  Some are just saving money by living with their parents.

Anyway, I wouldn’t say that we as a generation is  a lifeline for the current horrible housing situation, but I think it is a good thing that this crisis is happening now while we are still young. We still have time to figure stuff out,  learn from our parents’ mistakes, and build up our assets.  Unfortunately,  many baby boomers who were most affected by this economic disaster may be running out of time to rebuild.

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Last year my husband and I bought my in-laws’ home down in Southern California, and so we have been homeowners for 7.5 months now officially.   We have a really nice family living there now and for the most part things have been going smoothly, but there have been a few headaches that we’ve never encountered before.

First, the neighbors next door has completely neglected their backyard.  This isn’t exactly something we could fix because we can’t just jump over their fence, pluck out all the weeds, and clean their green pool.   I have contacted the public health department regarding their pool because you could see the green and brown slosh from SPACE via satellite photos and it can be a breeding ground for mosquitoes.  I’m not sure if it got cleaned up yet but they did get a ticket from the county.  They also have a couple psycho little dogs that barks day and night because they are probably not being fed.

Next, this weekend our home caretakers called us and told us that the water heater broke and it would cost over $1000 to replace it.   The water heater is over 20 years old so I guess it was its time.  It sprung a leak and damaged the garage’s wall a little bit, too.  We had the money to replace it in our emergency fund, but it was still an unpleasant surprise.  So I started researching a bit into our insurance policy and I read on the internet that this sort of thing is usually covered by home warranty policies.

I do vaguely remember that in escrow last year my inlaws purchased a one year warranty for us, so it is definitely still valid now, but I was at work so I couldn’t dig through my mountain of home-related paperwork to see what company held the policy.  So I called the realtor that took care of the transaction and she told me right away what the warranty company was and the plan number.

I called the warranty company and our insurance company to see what we could do about it, and the warranty company said they would cover the water heater replacement and the insurance company said they would cover water damage on the drywall.  The warranty company sent a plumber within 4 hours of my call and replaced the water heater, and they also checked out the drywall and said it is drying enough that it doesn’t need to be replaced.  Both my hubby and I were very relieved because we didn’t want the family living there to be without hot water for a very long time.  They have been showering in cold water for a couple days now.

It seems that my husband and I are the type of people who are unlucky (or lucky) enough to get the most out of insurances and warranties, so we are considering extending the home warranty when it expires considering that this time it did save us a bunch of money.  So I guess the lesson here is to be aware what your home warranty and insurance covers and does not cover.  If I hadn’t remembered that we had a warranty then we would have paid for the repair out of pocket.  Also, another obvious point is that owning a home is a lot more trouble than just renting.

I definitely do not regret buying the home with the hubby, but I guess things like these make me realize how big of a responsibility it is.    I think we are pretty both realistic about the fact that we will not make money from the house and we simply bought it to keep it in the family.  I do see the house as a backup plan for possible high inflation because we are locked into a 4.875% fixed rate, and there is a possibility that we would move down there.  So as stupid as it sounds, there is definitely a little bit of joy in knowing that after fifteen or so years we will own a piece of real estate free and clear.

Anyway, we are happy the current problem is fixed, and now we are more aware of what to do the next time something like this happens.  I think when we were young our parents took care of a lot of things like these with their homes, and we did not even know or care that much.  Live and learn I guess.

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Apparently, as part of the new budget that increased taxes on everyone there is a tax credit for people who purchase brand new homes.  This means that the home cannot be occupied previously by anyone.  This seems like it would be a boost to home builders.

Here are the specifics:

1) The home has to be brand new, but the tax credit applies to all buyers who intend to live in the home.  You do not have to be a new  homebuyer to qualify.

2) There is no income limit to qualify for this tax credit.

3) You have to close escrow on the home between March 1, 2009 and Feb 28, 2010.

4) There is a total of $100 million assigned to this credit, so that means only 10000 homes will qualify.  It is first come first serve by closing date.

5) You have to live in the home for at least 2 years and you will receive the $10000 in 3 installments of around $3,333 each for the next three years.

6) This tax credit can be combined with the Federal Tax credit of $8000 for new home buyers.

This tax credit actually makes me quite angry because right now California is not even paying tax refunds to people who qualify.  Now they want to use all this extra money to help home builders sell homes?

Additionally, there is a very small supply of new homes here in the Bay Area so I do not see this helping many people here.  This is definitely beneficial to some friends we know in Southern California, where the markets have a glut of new homes that are not selling.

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Last October my husband and I spent a lot of time and money to purchase my hubby’s childhood home in Southern California from  his parents.  Everything went through at the moment we stepped on a plane for China.  So far it is going well.  Our entire family spent winter break at the house for over two weeks and now we have a wonderful family taking care of the home and we can visit whenever we want.  Since October, mortgage rates have dropped significantly so I was shopping around for a refinance.  Today we will be doing the signing with the same lender we are with now for a Fannie Mae to Fannie Mae streamline loan.  Our interest rate is going from 5.875% to 4.875% and we will be saving over $200 a month on interest.

Personally, I did not know that there was an option of the Fannie Mae to Fannie Mae streamline loan, but I talked to my lender in January about refinancing and they said that we qualify for a streamline loan  Basically, there is no need for a new appraisal and  broker fees were waived since we are just doing the refinance with  the same bank.  Some fees cannot be avoided, such as a new title search and title insurance.  They also ran a new credit check, but the process was very easy overall since they had pretty much all of our information.

After running a bunch of calculations on the costs I determined that it was still worth it to refinance because we would be saving over $80,000 on interest over the lifetime of the loan with the 1% difference in the rate.  We will recover our costs in a little less than 2 years and since we intend to keep the home for a long time it is not a bad deal.

Also, since we only paid our old loan for 3 months, we are not really stretching out the loan by all that much.  Now if we apply the extra money we are saving towards the principal every month, we will pay off the loan six years early so I consider this a good move for us.

I am not sure if interest rates will move even lower, but 4.875% is a rate I am willing to stick with for a while and if it really goes down to 3.5 I could just refinance again.  If you are interested in finding out about the Fannie Mae to Fannie Mae streamline refinance you can check out this product matrix at Fannie Mae.

The basic requirements are these:

1. Your loan must be originally fully documented and underwritten by Fannie Mae guidelines.  It has to  be held by Fannie Mae right now.

2. You cannot have late payments within the 30 days you are applying

3.  You have to submit to a credit check, and your credit score needs to be 720 - 740 if your loan is more than 90% of the value, and 660 - 680 if your loan is less than 75% of the value.  Basically, your credit score has to be fairly good.

There are also a bunch of variations on the requirements based on the type of property and loan to value calculations that you have to read the Product Matrix to figure out.  I think this could be helpful to people who have homes that lost value dramatically because they really do not do an appraisal.  I would have been okay with an appraisal since we just bought the home 3 months ago and prices haven’t slid 20% in 3 months, but I know a lot of people who bought in 2006 or 2007 who have lost 20% to 30% and can’t take advantage of the great rates now.  My suggestion is to ask your lender if you qualify for a streamline, and you may be able to save thousands of dollars.

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