In a word, MONEY. In two words, TIGHT LENDING. Sure, there are other factors, but none as pertinent as this in today's housing market. I can use many more words to describe the myriad and constantly-changing conditions, programs and other variables, and I probably will do that in future posts. This is about First Things First, about preparation and setting realistic expectations in order to be able to take advantage of today's "Buyer's Market".
To begin, I beg your indulgence for a little rant of my own. I hope you'll bear with me.
The same institutions that brought us the fast and loose cruddy-loans-bound-to-fail a several years ago - even going so far as to hedge their bets against the surety of said loans - have taken their bailouts, and apparently, invested them elsewhere. Since 2007, the pendulum of home-lending has swung to and remains at the other extreme of the reckless "Bubble Years". Among other things, we're now looking at a federal bill proposing minimum 20% down-payment across-the-board, and barring something just shy of Divine Intervention, we will see a significant decrease in conventional loan limits come October 1, 2011 in Los Angeles and an even deeper reduction in many other California markets. Currently available specialized loan-programs can be helpful for some buyers, but as much depends on the specific property in question as it does the good credit and other qualifications of the prospective buyer. The institutional hedging of loans (simply stated, insuring against failure) is a game they can't play the same way anymore, and without that insurance, banks have tightened up in a major way and this continues to strangle the real estate market, even as their own repossessed real assets increase, ticking-off their shareholders and blighting neighborhoods in the long and painful wake.
End of my rant for today. My mission is to find the work-around, the solution. Motivated buyers, this is for you.
Recent experiences with my purchasing clients has been that even the most sophisticated and qualified home buyers, those with impeccable credit and substantial down-payments, have been made to jump through Kafkaesque hoops to secure a purchase loan. It can be even more discouraging for new homebuyers who may be shocked to learn that though so many properties are available, a labyrinth of lender conditions can frustrate their search and ultimate acquisition. Fact is, unless you have a big wad of serious cash to buy something outright, you are going to need a mortgage loan to buy that house or condo.
So today's buyer needs to limber-up before jumping in. It's not quite yet impossible to get a loan and make a successful purchase as long as the buyer is prepared. To address that, I offer the following suggestions - First Principles - to observe before shopping for your first, next, or second home:
- DO - Get pre-qualified by a Bank or a reputable Mortgage Broker. (If you need a recommendation, just write or call me, I work with the best.) At minimum, you will need to prove your income and expenses in the form of recent pay and bank statements and 2 or 3 years of Federal Tax returns. This will establish the limit of a mortgage loan available to you and your eligibility as a borrower for any federal loan program, such VA, or FHA-backed loans that can minimize your down-payment requirement.
- DON'T - Buy a new car or boat or other major purchase once you've got your loan pre-qualification. The terms of your per-qualification are based on the information you provide at the time of applying and any significant changes (read: additional debt responsibility) will affect the amount, or even your ability, to secure that loan when you find a property to buy. Make that car/boat/whatever purchase, if you absolutely must, before shopping for a loan!
- DO - Select an experienced, full-time Realtor to work for you, if you haven't already done so. Feel free to contact me if you are not sure where to start. I may be able to help. There is no cost or obligation to find out, and you'll never have to wonder if things could've worked out better for you if only you'd called me first!
- DO - Be prepared to adjust your expectations. Depending on the cash you have available to put down, you may qualify for a federally-backed loan program, but the property you were hoping to purchase - bank-owned, fixer-upper, and many condominiums, to name a few - may not qualify. Here again, your Realtor can help you sort out the available properties appropriate to your needs and ability to purchase.
- DON'T - Plan on borrowing the maximum amount of your pre-qualified loan. Consider a purchase with comfortable payments, if your dream home is out of reach today, buy something else if you are able. The worst that can happen is that you'll either make it the home of your dreams over the next few years or it will simply increase in value, and you can move up then. Meanwhile, since you have to live somewhere, you'll be paying yourself in home-equity and building personal wealth in the time-honored American tradition. We're in one of the most desirable places in the world, Southern California, and last time I checked, this state isn't manufacturing more land.
