Home values in the State of California have been in an uncharacteristically steep rise since the beginning of the year 2013.
While many worry that this steep rise in home values is a sure sign of another Real Estate bubble, the reality is that while values continue to increase, patient homeowners are crawling into positive equity positions.
With interest rates increasing over 1% in the past 30 days, even more homebuyers have come out of hiding to close in on the dream of homeownership before affordability passes them by.
Making Sense of Rising Home Values
Looking at the chart above, you can see where low housing inventory is causing more buyers to compete, which drives up values. The far right column shows a decrease in the volume of home sales.
The decrease in the availability of homes translates into more buyers competing to buy fewer homes for sale. This drives up home values and trickles down to patient homeowners.
MTM & YTY
The first two columns show the increase in home values from April 2013, to May 2013. In southern California, only Ventura County saw month over month decrease in values.
Homeowners in Riverside, San Bernardino and San Diego Counties should pay close attention to how the market is affecting home values.
Across California, owners are in a much better situation today than they were last year with home values Statewide increasing 31.9% for single family homes, and an unbelievable 38.8%
Low Equity Options
A positive equity position of as little as 3% opens up many refinancing opportunities for those that do not qualify for a FHA streamline, VA IRRRL, or HARP 2.0 underwater refinance.
FHA financing still offers a very viable and widely available option to homeowners that find themselves with high debt to income ratios or lower credit scores.
The Pros of FHA
Can refinance with as little as a 640 credit score
Interest rates remain lower than Conventional in most cases
5/1 ARM is great option for accelerating equity
Debt to income ratios up to 56.9% allowed
The Cons of FHA
Requires Upfront Mortgage Insurance of 1.75% of loan amount
Requires Monthly Mortgage Insurance regardless of LTV
Monthly Mortgage Insurance is Permanent as of June 3rd, 2013
Rising interest rates make Streamline Refinance more difficult
Conventional financing offers many more flexible options for high loan to value homeowners. With the resurgence of Private Mortgage Insurance, and much more affordable and flexible options, it makes sense to take a close look at both FHA and Conventional as options.
The Pros of Conventional Financing
Can refinance with as little as 640 credit score
Can refinance with as little as 3% equity
No upfront mortgage insurance
Mortgage insurance scales according to loan to value
Discounted PMI available if income qualify
The Cons of Conventional Financing
Requires good credit for lowest closing costs
Debt to income ratios of 45% required (up to 50% allowed)
Interest rates can be higher than FHA in some cases
Exploring Your Refinancing Options
The loan program you choose depends on more than simply interest rates. You have to also consider how long you plan to stay in your home.
Adjustable Rate Mortgages (ARM) may be the best option if you plan to stay in your home for 10 years or less. With loan programs that offer fixed rate and payment mortgages for 5,7 or 10 years, it’s worth exploring.
If you plan to stay in your home for more than 10 years, a Conventional loan with a slightly higher interest rate may save you tens of thousands of dollars over permanent FHA mortgage insurance.
Working with a loan officer that is willing to educate you with all of the options that are available, and present you with the options that might best meet your specific and personal goals is key to making an informed decision.