California Real Estate and the Move up Buyer
I just finished a phone conversation with a potential buyer who was feeling like she had been taken for a ride. Really? I ask and then go on and try to calmly explain the process of the Short Sale and Foreclosure process. I have discussed this numerous times before with these buyers and they still really want this potential new home. Oh, and these buyers already own a home.
So today we REALTORS are confronted with a different type of move up buyer. The buyer that sees nothing wrong in purchasing their new larger box home and walking away from their first smaller box home. I know, it used to be that everyone understood the step up process in home ownership. The process where you the home owner and buyer, sells the first home and takes the equity and puts it down on the next home that is larger, prettier and in a nicer neighborhood. What a fine line we REALTORS walk while trying to council this type of potential client. The right thing to do is inform them of all the reasons why this is not a good idea and look for a way to either help them attain their wish or not. Thankfully Fannie Mae & Freddie Mac are becoming wise to this and are taking steps to curb this activity.
So, what happens now when the home owner/buyer says they are renting the first home out and would like to take advantage of lower house prices to move up now is that if there is not at least a 30% equity position in property #1 the buyer will need to qualify for 100% of both mortgages. I like this.
Can this buyer still take advantage of this down market? Yes, most definitely although not everyone will be so fortunate.
1) You will need the income to qualify for the 2 loans or 3 or 4 or whatever
2) You will need the 10-25% to put down on the new purchase (yes, really)
3) You will need a “real tenant” even though the rent collected will not be used as a compensating factor to qualify for the new purchase (Because if you haven’t figured out by now, I am saying it is morally reprehensible that people walk away from their homes in this manner)
4) DPA (Down Payment Assistance) programs cannot be used in conjunction with this type of purchase nor should they be. (come on now!)
5) or sell your home on your own (if you have 0 to little equity)
I know this is a simplified way of looking at this process and I also believe that it is our responsibility to be part of the solution, not the problem. You don’t walk away from an investment because today it isn’t worth what you paid for it and there is something newer and shinier around the corner.
So consult your REALTOR and make educated responsible plans for your future.
Kelly…
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