Consumers may only be a year into what analysts are predicting will be the worst recession in modern history.
So it’s a great time to buy a house, right?
The answer may surprise you.
This is a buyer's market. While interest rates for a 30-year fixed mortgage are at 5% and there are now more than 1.9 million homes just waiting to be picked up. And while banks are raising the bar for would-be home buyers, they are looking to make deals.
“Mortgages are available,” says Walter Molony, a spokesperson for the National Association of Realtors. “But banks are asking for higher down payments and higher credit scores before they lend.”
Down Payment Is Just the Start
Just a few years ago, getting a mortgage was about as easy as ordering a pizza. Since the sub-prime mortgage meltdown, though, banks have gotten a lot pickier about those to whom they’re considering lending cash. It’s not always enough to have money for the down payment. Banks want assurances that the property is priced well and buyers will be able to may monthly payments consistently.
Here are some helpful hints to make sure that banks view your mortgage application in the best possible light:
Helpful Hint #1: Pay off your debts. Banks will take notice if your debt to available credit ratio is high. Anything over 50% will be a red flag, and if you’re in default on any of your bills they are sure to notice.
Helpful Hint #2: The house you can afford may not be the house you want. You may be able to afford the down payment for the place with four bedrooms, two-and-a-half baths, a finished basement and heated pool, but if the monthly payments will wipe you out then you better think twice.
Helpful Hint #3: Get some help. Crunching the numbers isn’t easy and you might benefit from some coaching from a financial advisor. For example, Manny Alverado, operations specialist for the U.S. Department of Housing and Urban development says that no more than 31% of your total income should go to your mortgage. Then there are property taxes, upkeep, energy costs and about a dozen other things to consider before committing to a new home.
Helpful Hint #4: Find a good lawyer. If environmentalists considered how much paper went into a real estate closing, they’d probably lobby to outlaw home buying. Getting someone to help you navigate the legal process will help you keep your sanity.
Helpful Hint #5: Don’t be afraid to be conservative. Complex mortgages (like those which only require interest payments for a time or don’t require borrowers to state their income) broke Wall Street so don’t let them break you. A good, old fashioned, conservative mortgage without all the bells and whistles will help you avoid any surprises in the long run.
Helpful Hint #6: Brokers, contractors, appraisers and inspectors travel in packs. One-stop shops tend to be bad news. If your broker introduces you to the mortgage guy who introduces you to a lawyer, you’re essentially relying on the recommendation of one person. It may be convenient, but Alverado maintains that there’s a chance that they’ll be looking out for their own interests rather than yours. It’s important to get references before you decide to work with anyone on buying a house.
Helpful Hint #7: Look at the comps. In a market like this, where housing prices are falling, banks want to make sure that you’re not paying too much for a house. If they think you are, then you won’t get the loan. So make sure you look at recent comparable sales in your area, so that if the issue ever comes up, you’ll be able to justify an accepted offer.