Lately, one of the first questions I get when anyone finds out I am a Realtor is “What’s going on with mortgages”? Well, I’ll tell ya… It is no secret that the sub-prime mortgage market is not what it was. It is also no secret that every time we turn around the rules for qualifying for a mortgage have changed yet again.
But, fear not, all is not lost. If you are thinking about buying a home or selling a home you still can, and you still should, you just need to be prepared for what you you are facing.
As a buyer, even with an excellent FICO score, you may need to provide “full docs”. This means that you will need to have all your financial records ready to show to your lender. Yup, its a pain… but it really is a good thing for everyone, ultimately.
A full doc loan that demonstrates the borrower’s financial history and ability to pay back what they have borrowed protects not only the borrower, but also the lender and ultimately, the market. Foreclosures and short sales are not good for anyone.
Also, although interest rates are still low right now, historically when the market has behaved as ours has these past few years, the market correction usually involves higher interest rates so that the lenders can recoup some of their losses.
What this means to you as a buyer is that a home bought right now at a higher price with a lower interest rate will ultimately cost you less in the long run that a home bought for a lower price with a higher interest rate will. Don’t believe me? Check for yourself using the free mortgage calculator I used on Bankrate.com
I used the same time period for both (30 year fixed). First I looked at $450,000 loan, (a starter home price here in Claremont), fully amoratized, at 7%. Your monthly loan payments would be $2,993.86/mo. And, you would have paid $627,790.04 in interest alone over the life of the loan.
Then, I looked at a $400,000 loan, also fully amoratized, at 9%. Your monthly payments for the lower home price would be $3,218.49/mo. And, you would have paid $758,656.57 in interest over the life of that loan.
A $50,000 drop in the price of a home, which is a pretty good discount, would cost you $224.63 MORE each month on the loan payment, and $130,866.53 more in interest over the life of the loan.
And, a $100,000 drop in the price of a home, which would be a VERY good discount, at 9% would save you $177.68/mo. on the loan payment, but would still wind up costing you $36,034.46 MORE in interest than the $450,000 loan at the 7% rate would cost you.
Just think, a $100,000 drop in price and you still wind up paying more ultimately. So, the time to buy a home really is right now while interest rates are still favorable.
As a home seller, you want to have the largest pool of buyer’s for your home possible. So, listing your home now, for a realistic market price, while interest rates are still low, means a larger percentage of buyer’s are still able to buy.
As a Realtor, I want to help my buyer’s buy the most house they can get for the lowest price that they can pay. And, when I am representing my seller’s, I want to help them realize the highest price they can for their home in the shortest amount of time.
So, you can see that right now I have the opportunity to do both for my clients, by helping my buyer’s buy while interest rates are low saves them money. And, helping my seller’s sell while the market is stronger makes them more money. A $100,000 drop in value hurts my seller’s and potentially my buyer’s as well.
While it may not be anyone’s idea of fun, especially while the interest rates remain lower, a 30, 40 or even 50 year fixed loan where the borrower has been asked for full docs, and has demonstrated both their creditworthiness and their ability to pay is good for the market, which is good for everyone.
I.V.P.G. - Inland Valley Professional Group Powered by Keller Williams in Claremont/Upland/Rancho Cucamonga, California
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