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Even as housing prices in Imperial County continue to spiral downward, there are some positive signs for people who were cautious during the housing boom.

The most recent figures indicate that in Imperial County, the median price of an existing home declined to $175,000 in December 2008, down 28.6 percent from December 2007, when the median price of an existing home was $245,000.

The large number of foreclosures in Imperial County is providing potential buyers an opportunity to purchase a home a very good price.

With many home values in Imperial County declining, the housing market is actually providing an opportunity for many local residents to become homeowners. The declining prices may even mean that homes that previously were out of reach for some buyers are now affordable.

The large number of foreclosures in Imperial County is providing potential buyers an opportunity to purchase a home at a very good price. However, some foreclosed homes may be in disrepair and require additional work to make the property livable. A program offered by the Federal Housing Administration (FHA), the 203(k) loan allows home buyers to borrow as much as $35,000 more than the mortgage to pay for certain renovations and upgrades, such as new carpet, paint, and appliances that a foreclosed home may need.

To view the Federal Housing Administration Web Site, click HERE

The average interest rate for 30-year, fixed rate mortgages was 5.01 percent for the week ending January 8, 2009 according to Freddie-Mac. Lower interest rates together with lower home prices can lead to more affordable mortgage payments, which allow some home buyers to move up, and it allows first-time buyers to get into the market.

To qualify for theses record low interest rates, borrowers will need at down payment of 3.50 percent if utilizing an FHA loan or 20 percent for a conventional loan. A strong credit score is required for conventional lending, however even FHA government loans now also require a better credit score than in previous years. The difference between down payments for the two loan programs can definitely stifle the decision to buy a home. An FHA loan requires $6,125 down payment for the median price home in Imperial County, while the conventional loan requires $35,000. Additionally, home buyers may have to pay for closing costs not paid for by the seller.

To calculate how much house is affordable, consider the following basic calculations. Remember, these are only guidelines to use in helping to determine how much home a potential buyer can afford .The general rule is not to use more than 28 percent to 30 percent of the monthly GROSS income to cover the monthly mortgage payment, including property taxes and home owner's insurance.

All debts combined, including the mortgage, credit cards, car payments, student loans, personal loans, etc., should be less than 41 percent of the buyer's gross income.

The general rule is not to use more than 28 percent to 30 percent of your monthly GROSS income to cover the monthly mortgage payment, including property taxes and home owner's insurance.

Here is a breakdown of the costs associated to qualify for the purchase of  a single family home in Imperial County with a median price of $175,000 …please note these calculations are examples only.

Determining The Loan Amount
A home with a selling price of $175,000 would require a down payment of 3.50 percent or a total of $6,125 using an FHA loan. Assuming you have good credit, your Upfront Mortgage Insurance Premium (UFMIP) would be 1.50 percent,  which can be financed and is added to the loan amount. Calculate $175,000 minus $6,125 = $168,875. Add the UFMIP of $2,533 to $168,875 for a total LOAN AMOUNT of $171,408.

Monthly Loan Payment
Now that the LOAN AMOUNT of $171,408 is calculated, it is now possible to determine the monthly mortgage payment. For this exercise, a mortgage interest rate of 5.50 percent will be used. By using a mortgage calculator for a 30-year fixed rate mortgage, the monthly payment is calculated at $973.23 without including property taxes or insurance.

Monthly Property Taxes
Property taxes are estimated at 1.25 percent multiplied by the sales price. Multiplying the sales price of $175,000 by 1.25 percent equals $2,187.50 for this estimate or $182.29 per month.

The Imperial County Assessors office will provide the adjusted property taxes based on their estimate of value, which may be different than the sales price or appraisal. In reality, property taxes are typically lower than this rate, however in areas with a Community Facility District (CFD) or Mello-Roos, an additional amount for property taxes may be required.  Check with the Imperial County Assessors office to determine if the home you are buying is located in one of these special assessment areas.

Monthly Homeowners Insurance
Homeowners Insurance is protection for the home against loss or damage. Since the bank technically owns the home, the bank is the beneficiary, since the buyer owes the bank money for the home in the form of a mortgage called a “note”.  Homeowner's insurance premiums vary by insurance company provider, however for this example insurance costs will be calculated at $600 per year, or $50.00 per month.

The calculations show that a buyer would need to have an income of $4,276.93 per month to purchase a median priced home in Imperial County, and would need to keep their other debts at no more than about $450.00 per month.
Monthly Mortgage Insurance (MIP)
Since only 3.50 percent was put down for an FHA loan, and the bank is taking on a much larger risk, there is another form of insurance associated with an FHA loan. The insurance is called the Monthly Mortgage Insurance Premium, or MMIP , which is sometimes referred to as PMI. However, PMI is a company brand name which means Private Mortgage Insurance, commonly used with conventional loan financing. The calculation will take the LOAN AMOUNT and multiply it by a factor which is determined by different criteria. For this example, a MMIP rate of .55 percentof the LOAN AMOUNT, for a total of $942.74, or $78.56 per month.

Total Mortgage Payment - Putting it all together
Here is a breakdown of all the costs associated with a loan for a home with a $175,000 price tag, the median price for a median-priced single family home in Imperial County, including the loan, taxes and insurances.

$972.23 Principal & Interest
$182.29 Property Tax
$ 50.00 Homeowners Insurance
$ 78.56 Mortgage Insurance Premium
=============================
$1,283.08 TOTAL

Affordability?
Applying the rules for debt to income ratio mentioned earlier in this article, where it was stated that the mortgage payment should not exceed 28 percent to 30 percent of the buyer's gross income, the calculations show that a buyer would need to have an income of $4,276.93 per month to purchase a median priced home in Imperial County, and would need to keep their other debts at no more than about $450.00 per month to keep within these guidelines. The annual gross income required would be approximately $51,323 per year in order to qualify for the home and existing debts.

Frederic Din is a Realtor who lives and works in Imperial County. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it