How the new financial climate is impacting home buyers

Housing markets across the country are recovering at a slow and steady pace.
Zillow
Jul 30, 2013

 

By Monte Mohr

How the New Financial Climate Is Impacting Home Buyers

Housing markets across the country are recovering at a slow and steady pace. And although recent reports point to the rising number of single-family homes being sold, buyers need to be aware of the fundamental change in the way financial matters are handled within real estate deals.

Financing

Buyers in today’s housing market are finding it much more challenging to get approved credit for their loan needs and it is certainly much harder than it was during the housing boom. While a good credit score is absolutely critical in obtaining a loan, it is no longer enough to secure a loan by itself. Nor, is it enough to guarantee the best interest rate. Lenders are now requiring much more documentation throughout the loan process; they want substantiated incomes and down payments along with in depth information about a buyer’s debt-to-income ratio. Buyers should be prepared to furnish months’ worth of bank statements and payment stubs as well as provide documentation for any recent credit inquiries. Lenders are looking at every installment loan (i.e., car payments, student loans, etc.) as well as open lines of credit (i.e., store credit cards, major credit cards, etc.) that have been issued in a buyer’s name.

The lack of these constraints played a major role in the housing collapse felt in the mid-2000s. And while nobody wants to repeat the market crash, buyers are still struggling a bit with incorporating these new financial guidelines into their personal real estate experiences. But the fact is, these heightened credit restrictions have become a new reality, or a new normal, for home buyers.

Insurance

Ninety-five percent of all mortgages carry with them some sort of guarantee or insurance. Have you ever heard the term PMI (Private Mortgage Insurance) before? This simply means that Fannie Mae and Freddie Mac don’t want to lose money by granting bad loans. And, the only way to prevent such a loss is by tightening the requirements for borrowers.

So what does all this mean if you are looking to buy your dream home? Well, if you are in the market to buy a house, you should not stop your quest out of financial fear. But you should absolutely take the time to get your financial portfolio in good shape before you try to qualify for a loan. There are many people within the financial industry who are qualified to help you accomplish this task. Start by speaking with a certified mortgage specialist as they are well versed in the ever-changing mortgage rules. There are also people who specialize only in credit scores; these people can guide you through the necessary steps to increase your credit score.
The bottom line is that home buyers in today’s market must have realistic expectations about how much money they can borrow, and they must be prepared to do some legwork when the time comes.

Monte Mohr has sold more than 2,500 homes, making him one of America’s top Realtors for the last 25 years. This experience has given him a unique perspective on the Nashville real estate market where he can be found at www.tennesseedreamhomes.com. He is also a regular contributor of real estate information to Nashville’s NBC affiliate station, WSMV Channel 4. To learn more about Monte Mohr’s experience as a real estate agent, to get free advice about your biggest real estate challenges or to request an interview, contact him at Info@TennesseeDreamHomes.com.