Move Up Buyers


Mike's Morning Mortgage Update
Move-Up Buyers

I hope your week is going well and I also hope we continue with the beautiful Southern California weather until the spring.  I don't get excited about writing my blog, but for some reason I was very excited about today's blog.  Check it out and tell me what you think. 
Earlier in the week, we spoke about 1st-time buyers and why it makes sense for them to buy even without the tax write off.  Today I want to tackle a bigger issue that will continue to be an issue over the coming years.  We are going to take a small family that bought a house with low interest rates in 2013 and now it is time for them to move up, but interest rates are 1% higher!  Bill and Suzie have a home that is worth $550,000.00 today and they currently owe $360,000.00 and their payments are $2340.00 per month including taxes and Insurance.  They have 25 years left on their mortgage, but a 3 bedroom with 1300 square feet is not big enough for this growing family!  They make decent money and they can afford a bigger house, but they don't like that Interest rates are now 4.5% because they have a 3.5% rate at this time!  (Yes, I know rates are not there yet, but this is an example so stay with me!)  When they sell, they will walk away with $155,000.00 and they will put 20% down on a $750,000.00 property and their new payment will be $3921.36.  They know they will get an additional tax deduction, but they want us to look at the raw payments to see if it makes sense to buy in the long run. 
To pay off their current home in 25 years they will pay approximately $750,000.00 in Interest, Taxes, Insurance and Principal.  Of course I adjusted for property tax increases and Insurance too! 
Payments on the new home will be approximately $1,239,000.00 in interest, Taxes, Insurance and Principal.  Of course I adjusted for property tax increases and Insurance too!  They will still owe $126,525.00 at that time. 
The current home will be worth $1,163,260.76 with a 3% annual increase, and $1,492,570.00 with a 4% annual increase.
The New home will be worth $1,586,264.67 with a 3% annual increase and $2,035,323.00 with a 4% annual Increase. 
So let's break this down because these numbers are really big!  At 3% we have the old house worth $1,163,260 vs the new house of $1,586,264 - $126,525 that is still owed.  So the new house has $296,479 more equity, but we paid an additional $489,000.00 to get there and we have $192,521 left over divided by 300 months (25 years) =  a difference of $641.74 per month between the old house and the new house!  That looks way better than the $1581 we had at the start! 
At 4% we have the old house worth $1,492,570 vs the new house of $2,035,323 - $126,525 that is still owed.  So the new house has $416,228 more equity, but we paid an additional $489,000.00 to get there and we have $72,772 left over divided by 300 months (25 years) =  a difference of $242.57 per month between the old house and the new house!  Again, that looks way better than the $1581 we had at the start! 
Having people look at the big picture is sometimes what you need to do.  I will also say that most people can afford more when they are working and they struggle when they retire.  If Bill and Suzie stayed in the old house, Bill would have purchased a boat that he would use 2 times per year and Suzie would start a collection of purses and shoes and they would have spent the money regardless.  Buying a home is a forced savings plan!  It is not like Bill and Suzie said, "Oh, we have $100K saved and we want to put that down too!"  That is rare when they have that, and when they do, you need to sell them a rental property! 
Interest rates are getting a little jumpy! These are the highest levels of the year, but rates are still great!  I hope these are helpful as your buyers are looking for property:
  • 30-year fixed conventional 1st Mortgage with 20% down - 4.25% (4.310 APR). Loan amounts up to $453,100.00 = $2228.98
  • 15-year fixed conventional 1st Mortgage with 20% - 3.75% (3.851 APR). Loan amounts up to $453,100.00 = $3295.04
  • 5/1 ARM 1st Mortgage -  20% down - Fixed for 5 years and then becomes variable - 3.875% -  (3.931 APR) Loan amounts up to $453,100.00 = $2130.64
  • 7/1 ARM 1st Mortgage - 20% Fixed for 7 years and then becomes variable - 4.000% - (4.056 APR) Loan amounts up to $453,100.00 = $2163.17
  • 10/1 ARM 1st Mortgage - 20% Fixed for 10 years and then becomes variable - 4.125% - (4.184 APR) Loan amounts up to $453,100.00 = $2195.95
  • 30-year fixed 1st Mortgage FHA loan 3.50% down - 3.750% (4.795 APR). Loan amounts up to $453,100.00 = $2135.10 + $326.56 PMI = $2461.66
  • 30-year fixed 1st Mortgage VA loan 0% - 3.750% (3.985 APR). Loan amounts up to $453,100.00 = $2098.38
  • 30-year fixed 1st Mortgage Jumbo loan 20% down - 4.250% (4.263 APR). Loan amounts up to $3,000,000.00 = $14,758.20
All of the above are based on a 740 credit score.  Rates are subject to change without notice, your mileage may vary! 
I will be around all weekend and I really need a phone call or two.  I have a Fashion Show on Saturday and I would love to step out and take your call because I was not built for fashion shows!  I am free all day Sunday too so call my cell at 661-714-6258 or call me today and tomorrow at the office at 661-260-2970 Xt. 2222.  Have a great weekend and I hope to hear from you soon.
Sincerely,
www.AugustaFinancial.com                                             www.MikeMeena.com
 
If the above box did not appear the rest of my info is below:

Mike Meena
Augusta Financial
25129 The Old Road, Suite 350, Santa Clarita, CA 91381
Phone  661-260-2970 Fax 661-554-7121
Email - Mike@AugustaFinancial.com




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