Mortgage Updates

"Foreclosures, Bank Owned Homes, Short Sales... with the market continuing to go down... Am I crazy to buy now?"  That question has been posed more than once.  I have heard of well meaning folks counseling friends to wait for spring when prices will be REALLY low.

That sounds good.  It makes some sort of sense.  Wait longer and prices will go lower... Things to consider... Are you looking for the "best" buy? Or, are you looking to enter the home owners arena as a first time buyer?  I have said this before... It's all in your motives, your reasons for home ownership. 

When I meet with buyers, I ask thought provoking questions about their "house" (home) buying motives.  You see, I need to know why you are buying.  It's not that I'm nosey, it is that I am in business.  For a first time home buyer to close on a home purchase it will take a significant time investment on my part.  I don't take that lightly.  The answers I get from my would be customers are heart warming, and touching. 

In a recent interview with a first time home buying family. - Yes, typical family; mom, dad and two kids.  First generation Americans.  Their real reason for buying a home was to feel like they were now truly Americans and had a stake in this country.  To have roots, a place for the kids to grow up.  A place to grow old and an opportunity to build some equity to help fund future college.  What that does for me is drive me harder to make that dream come true.

Don't take me wrong, I also provide financing for hard core investors that look for the best deal for their real estate portfolios.  Each case, each loan is different.  But, in each case I work just as diligently to complete my customers goal... home ownership.

So, getting back to the original question... Financing is changing rapidly.  Every day dawns with new bad news and new revisions on how lenders can and will provide financing.  If you as a home buyer wait for the "best buy" you may not have the opportunity to buy, due to the increasing tightening of lending guidelines.  For example, take a look at declining markets.  In California, 23 Counties are listed as "declining in value".  Sacramento County, Placer County, El Dorado County are included in this group.  What does that mean to you as a home buyer?

Soon, very soon, 100% conventional financing will NOT be an option for you.  Certain down payment programs are also "drying" up.  This is due to limitations on Loan To Value (LTV) in declining markets.  So the "best buy" for you inevitably means that conforming loans will no longer do maximum financing.  So in non declining areas folks can pay higher prices and get maximum financing (100% or 97% LTV's).  But in declining areas, you have to come in with a 5% down payment. The argument is that in 12 months the house may be worth 5% less.

Additionally, the increased risk associated with lower credit scores has prompted Fannie Mae and Freddie Mac to impose risk based pricing.  This pricing increases the cost of money (points) for buyers with lower credit scores and with a down payment of less than 30%.  Wow.  Tell me how many first time buyers have 30% down and credit scores over 700?  For more upcoming changes see previous blog discussing the consumer draw backs regarding HR3519.

So you see, waiting to buy may mean you cannot buy.  If you buy today and intend to live in your home for 5-15 years... You will see appreciation... You will have all the joys of home ownership.  The loan window is closing for affordable, low down payment purchase transactions.  I'm expecting the next phase to of this imploding market to bring significant increases to the cost of mortgage insurance.  See my page on MI or PMI to find out why mortgage insurance is necessary. 

Over the last few months secondary financing is decreasing.  As the next wave of defaults hits our markets I expect lenders who would typically have participated in a "piggy back" transaction to create a combined loan to value of 85%, 90% of 95% to drop off the scene.  (Most the 100% CLTV's are gone; 95% CLTV is scarce.)  Can you blame these lenders, when they are having to write off 100% of their investment when a seller goes in for a short sale or foreclosure?

Therefore, I say it again.  If you are looking to enter home ownership now is still an excellent time to buy.  Prices are great.  Sellers and Banks are willing to help you with closing costs.  In some cases you can still buy with a very low cash investment.  Interest rates are attractive - under 6%...  If you are looking for a home, not a house to "flip", then now is the time to move.  Call a realtor today.  Check out the HUD lists, tour open houses, find YOUR neighborhood or condo.  Stake a claim for yourself or your family the time is right.