If you don't have a TV, a radio, or a newspaper, you may have missed all
of the negative press surrounding the mortgage and housing
markets. The severity of the situation has created a sort of panic that
has paralyzed the consumer. Rather than deal with any aspect of the problem, we
wait for someone to yell: "it's OK to come out now!" If you
are waiting for a "bottom" to the overall crisis, and for all the
news to turn positive, don't hold your breath. But where there's tragedy,
there's opportunity. Let me show you why it is, in fact, "OK
to come out now," and why you might be sorry if you wait too long.
The Pendulum Effect.
Depending on the data you are looking at, national average home prices are
down significantly. On average, this trend will continue, but consider three
things. First, the hardest-hit markets drag down the average depreciation. Second,
mid to high priced homes were more inflated than entry level housing. When those
homes depreciate, they have farther to fall than a lower priced home. This also
brings down the average. Finally, because panic can create a knee-jerk reaction
among sellers, and market perception can create a hesitance among buyers, prices
can be lower on the way down than they will be at the bottom.
What does this all mean? It's a GREAT time to shop for a moderately priced
home. When the market has found a solid bottom and the demand
returns, there will be a lot less ambiguity about what a home in your area is
really worth. Sellers will be less willing to entertain offers, and selection
The news might have you thinking that no one can get a loan
these days. This is far from true. Hindsight has given us a clear picture of
the kinds of loans that shouldn't be offered again. But the loans that
have performed more consistently are still abundantly available, and you might
be surprised what you can qualify for.
Banks like to see to see strength in at least 2 of the 4 areas:
- Credit Score
- sufficient verifiable income for the payment amount
- equity in the property or down payment
- Liquid assets (money in the bank, stock market, IRA's, 401k's,
The items that will make your loan more difficult to obtain:
- Non-Owner Occupied (investment property)
- Stated or No Income (meaning you can't prove it with W2's or
Bottom Line: If you can legitimately afford to make a regular house payment,
there's a very high chance that this can be proven to a lender, who will
in turn be happy to give you an excellent loan.
To make things better, interest rates are historically
low. At the very lowest point in mortgage rate history, a 30 year fixed
conforming loan danced around the 5.0% range. In the last several weeks, it
has dropped to 5.625%. (Follow day to day changes in mortgage rates with our
daily rates blog.)
There's even further impetus to act on this information. Even if prices
decline another 10%, due to the market panic, there are sellers out there right
now selling for 20% under current appraised value. So you might find a house
for $160,000 today that will end up being worth $180,000 when the market bottoms
out. A paradox, but true. This also means that your value is likely to be at it's highest as
far as refinancing is concerned, and remember that EQUITY is one of the positive
factors banks consider.
If you think you might be in your current home for more than a few years, have an adjustable rate mortgage, or have an interest rate that's over 6%. Or if you are a potential home-buyer, it is "OK to come out now," and doing so could save you lots of money.