South Bay-Beach Cities: Looking for a loan..things to think about

If you are thinking about buying a home in the South Bay Beach Cities one of today's big concerns is about obtaining a loan. The stories and rumors are everywhere... lenders are not making loans even to the most qualified buyers.... homes are falling out of escrow as qualified buyers can't get loans. As with all rumors there is a little bit of truth along with a little bit of fiction in these tales.


The reality in the Beach Cities lies somewhere in the middle. While the volume of sales is way down from previous years..homes are being sold and closing escrow. There are currently 179 homes and townhomes/condos in escrow in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo. April saw 98 homes and townhomes/condos close escrow in the South Bay Beach Cities ranging in price from $420,000 for a 1 bedroom condo at The Village in Redondo Beach to $3,025,000 for a new home in the Sand Section of Manhattan Beach. 16 properties sold at $600,000 or less; 30 sold between $600,000 and $1,000,000 while 52 homes/ townhomes/condos had prices over $1 million dollars. Trust me.. these were not all cash transactions... so loans are available.

There are a number of reasons why homes fall out of escrow... low appraisals, unresolved repair issues, buyer can't qualify, a change in plans for buyer/ seller or they find a home they like better. One of the biggest reasons homes fall out of escrow may surprise you... sometimes buyers just change their minds. This is especially true if there are multiple offers on a property. Buyers get caught up in the bidding war psychology and wake up a week later wondering what they have done.

Certainly obtaining a loan in 2008 is not the piece of cake it was in 2004. It doesn't mean loans are not available or that they are only available for the wealthy. Qualifications are tougher but not impossible. They key to getting a loan in the current market... be sensible and get approved before you even think about looking for a place to buy. Making $300,000 a year doesn't mean you can afford the home of your dreams in Manhattan Beach. It isn't so much what you take home monthly as it is what you have left at the end of each month that matters. If you have three expensive cars, buy your clothes in Beverly Hills specialty shops, take vacations at top notch resorts and are on a first name basis with the maitre d' at all the hot spot restaurants then you may not be able to afford as much house as you think. Add tougher underwriting rules and obtaining a loan could be far more difficult then many anticipated.

The new lending rules don't mean you can't buy a home but may mean you may be buying in Hermosa, Redondo or El Segundo as Manhattan Beach may be too pricey for first time buyers. This is what buyers did before 2001 and the subsequent loosening of loan criteria. I've closed three properties in the last few weeks with buyers who all made in excess of $200,000. There were no problems with the loans. They bought in South Redondo, Torrance and North Redondo. They all had 20% cash down payments and great credit. Their house payments are affordable and they plan to stay for a minimum of 5-7 years. Then they will look into upgrading closer to the beach.

If you feel that now is the time to buy a new home the first thing you need to do is talk to a lender and get pre-approved.. not pre-qualified but pre-approved. Figure out what is on the market in your price range in the area where you want to live. If you are adament about being west of the highway then you might have to look at a little house under 1000 sqft rather then the 3000+ sq ft house you really like. In the Beach communities buyers often have to sacrifice square footage and number of rooms for location. If you find you need the bigger house then your choice of location may have to change. I know many buyers think that if they just wait another year they can have price and location. The truth is that that's probably not going to happen and most locals know it. They may not want to admit it.. or may be hoping for a miracle.. but realistic buyers know the market isn't headed to 1990 prices.

There were two good articles in the LATimes Sunday Real Estate Section. One by Kenneth Harney... Credit crunch puts squeeze on specialized mortgages.. and directly below it was another by Jack Guttentag... Steps to getting a home loan.. These two stories reflect the ever changing real estate home loan market. They are both worth a read.

***Part II will cover jumbo loans