Mortgage Meltdown! What Does It Mean to Homebuyers?
By admin at 15 November, 2009, 7:00 pm
* Low-Doc
* No-Doc
* Full-Doc
* 100% LTV
* Interest Only
* ARM
* Conforming
* Non-Conforming
Not long ago, mortgage companies started to offer a smorgasbord of programs to make home ownership easily available to everyone. A quantity of the common terms they have become accustomed to hearing include:
The housing market has been red-hot for plenty of months, but they are realizing that all these short-term “solutions” have become long-term “problems”. For instance, if a potential borrower had a decent credit score, they could receive a “No-Doc” loan…which meant that they didn’t have to submit documentation proving employment, income or debts.
Not only that, but there were the “interest-only” loans, where people could qualify at a low “teaser” rate…only to find themselves faced with the higher rate within a few months.
&, can you even imagine giving somebody a loan at 125% of the value of their home? It is crazy! This is a recipe for bankruptcy if I ever saw two. Two times they have used this funds, it is gone. & when they get in to trouble, they cannot even sell the home without bringing a substantial amount of funds to the closing table. Since most people don’t have a large amount of money laying around, they are a candidate for bankruptcy or foreclosure. These loans should seldom have been allowed in the first place.
Plenty of mortgage companies offered “adjustable teaser rates” – which meant that the borrower started out with a low interest rate (perhaps for the first year or so)…then jumped to the higher rate, which meant that several times during the life of the loan, their mortgage payment would increase dramatically.
It is so easy to buy a new home with low payments, & plenty of borrowers don’t realize what the higher payments will do to their budget. I wonder who was there to counsel these homebuyers? Who was there to remind them of what was going to happen in a few months? I consider it my obligation to discuss this with my homebuying clients to make sure they understand the ramifications of this type of financing. As an Exclusive Buyer’s Agent, part of my job is to counsel my clients in every aspect of their purchase.
Now, because of plenty of of these loan programs, they are facing major foreclosures. Mortgage companies are folding & the entire industry is undergoing a major meltdown.
At least 82 high-risk lenders have re-organized or folded, resulting in large loan losses. Plenty of lenders are not closing on loans they have committed to. If you are in the method of purchasing a home, it would be to your benefit to check with other lenders in case your selected lender cannot close on your loan. Plenty of companies are basically cancelling loans & in plenty of cases the homebuyer has to start over with a new lender. This can result in the homebuyer having to pay for another appraisal if the new lender won’t accept their current appraisal.
The bills are coming due! The delinquency rate on low-quality mortgages is at 13.8%, & the rate has doubled on medium-quality mortgages. Foreclosures are at an all-time high! Plenty of areas of the country have real estate markets in the tank…and may take years to recover.
The Bottom Line! Basically, if you are purchasing a new home & have solid employment, a lovely FICO score & at least 5% of the purchase price as a down payment…you should be fine. But, at this time, borrowers will have to prove that they can afford the home. The days of lenders giving borrowers the benefit of the doubt seems to be over. Everything must be documented.
Until this meltdown settles, plenty of of the loan programs that they have been accustomed to will no longer be there. Actually, this will mean that a bit of “common sense” has returned to the mortgage industry. Somebody that cannot afford a particular home should not buy it in the first place. Borrowers will have to qualify at the normal rate instead of the “teaser” rate. The mortgage industry is basically coming down to earth.
Remember, if you plan to purchase a home in the near future…follow these guidelines for a successful transaction:
But, on the flip side, potential homebuyers & investors will be able to purchase foreclosed properties at a substantial discount.
* Keep your credit score as high as possible. Check it often & take care of any discrepancies. This can mean a large difference in your interest rate.
* Maintain your employment. Lenders will require to see at least 2 years of steady employment history.
* Save your down-payment funds. Make steady deposits in to your savings account because lenders will require to see the “paper trail”. & they require “seasoned” funds, which means that the funds must be in the account for several months prior to loan application.
* Don’t purchase a vehicle prior to your loan application. This greatly reduces your income to debt ratio & could prevent you from purchasing your new home.
* Plan carefully & try to receive a fixed-rate mortgage. This will insure that your principal & interest won’t increase at any time in the future.
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