Buying a house in a different market
The process has changed
In the wake of a severe weakening of the housing market, real estate agents, lenders and consumer groups alike agree that new regulations and the tightening of credit are best for the housing market, and potential homebuyers.
"One thing I think has really helped in this crisis is that before we had a lot of online lenders that were not familiar with our state and with our contracts," said Keith McCulloh, president of the St. Charles County Association of Realtors. "That led to some people not being able to close and not being able to close on time."Aside from that, some consumer advocates have charged that online lenders opened up risk that consumers would be deceived.
Now, consumer advocates say, there is greater availability of traditional mortgage types at attractive rates.
"With the availability of good conservative 30-year fixed-rate product, it's still a good time to be in the marketplace," said Chris Krehmeyer, president of Beyond Housing, an organization that counsels low- and middle-income homebuyers, as well as first-time homebuyers. "You don't have to go to the companies that are marketing you, that are sending mailings, that have billboards and have all those marketing teases to get you to contact them."
Those types of institutions, as opposed to regulated banks, are what Krehmeyer says led to some of the subprime and other loans that have been called everything from "creative" by some, to "lousy" and "crack loans" by others.
Don Rogers, former president of the county Association of Realtors, says finding the right property today also is much different from the days when homes simply couldn't be built quickly enough to satiate consumers' housing hunger.
"During the land rush, we would go out and take a listing, put a sign in the yard, and two, three days later it was on contract," Rogers said. "Now, we're seeing extended days on market - that drives the price for buyers. But sometimes, buyers see a property sitting for a long time and wonder if something is wrong with the property when there may not be."
Rogers also said buyers are more prepared than in the past.
"A lot of them have gone out and began the loan process through getting pre-approved and pre-qualified," Rogers said. "We prefer a pre-approval letter and it also makes a potential offer much more valid in the seller's eye."
Currently, a 30-year fixed-rate mortgage for someone with favorable credit usually carries an interest rate of 6.75 percent. In 2004, that rate was as much as a full percentage point lower.
Joe Crenshaw, president of New Frontier Bank in St. Charles, said buyers can expect additional checks on their finances than in the past, when some mortgage companies were making loans based on an applicant's stated income.
"The underwriting guidelines there have tightened, there is more of a down payment, more verifications of ability to make payment," Crenshaw said.
Most importantly, Krehmeyer says, is approaching home purchases with thoughtfulness and patience.
"What we're trying to get clients to do is take the longer approach that the homebuying process is not a sprint to the closing table," he said.
Those who work with Beyond Housing undergo nine hours of financial education. Krehmeyer says the organization's foreclosure rate is at least as good if not better than the traditional homeowner.
Real estate agents, lenders and consumer advocates are noting the comeback of Federal Housing Authority loans, which provide a guarantee to banks that borrowers will pay their mortgages off, insuring each mortgage.
"In the past, real estate agents and others didn't want anything that would make getting a loan approved that much more complicated," Krehmeyer said. "But FHA is nowhere near as cumbersome as it used to be."
The extra administrative hoops borrowers must jump through to qualify for the loans, Krehmeyer says, are for the ultimate good.
"We are certainly a believer that all those hoops are to look out for the best interest of the buyer," he said.
Also gone are 100 percent loans from regulated banks, with most loans, regardless of mortgage companies, requiring anywhere from a 1 to 5 percent down payment.
Once buyers do get financing, McCulloh says, they are finding the rest work to their favor.
"The buyers, within reason, can go ahead and offer a fair price and the seller is going to accept it," he said.
What every homebuyer should know
Chris Krehmeyer of Beyond Housing recommends homebuyers go through the following steps when getting a mortgage:
1. Go to a regulated bank. These banks want to lend you money and they have every interest in making a good loan to you.
2. A 30-year fixed loan is best. It lets you get underwritten and lets you make sure you can afford the loan so you know what your payments will be.
3. Contact a financial education resource. Having someone you can ask about all the nuanced phrases and acronyms in mortgage documents helps you to understand if a loan is good for you and your family.
4. Be patient and thoughtful.
What the federal housing bill has changed
Wondering what the federal housing stimulus bill has changed for you as a buyer? There is now a $7,500 tax credit for first-time homebuyers, along with additional money for foreclosure counseling for those who are in tough straits.
The bill aims to keep as many people in their homes as possible through education for those facing foreclosure. In addition, $4 billion will go toward the acquisition and rehabilitation of foreclosed homes. Neighborhoods with high levels of foreclosure and vacant properties should benefit.
Consumer advocates also say the money will provide greater stability in hard-hit areas, with an eye to staving off devaluation.
