Thursday, October 23, 2008
Today a prospective homeowner turns on the T.V. or picks up a newspaper and hears little about the housing market but doom and destruction. Foreclosures, mortgage-loan related bank failures, slow housing starts, and poor home sales dominate the news. Tougher credit requirements are now the norm as a remedy to further financial trauma for consumers and banks alike. All of this may lead a would-be buyer to quickly answer the question “Is now a good time to buy a home?” with a resounding “NO!”
Before signing that apartment lease for another year, a would-be buyer scared off by current events in the housing market needs to look behind the scenes of the mortgage crisis. Though the situation is complex, in analyzing the causes, there is plenty of blame to go around.
Aside from the popular scapegoat – the general economy – buyers, real estate agents, and lending institutions all share some blame for the current situation. Home ownership is the American Dream. Nowhere is written that the perfect home must be the size of the Taj Mahal and must be located in an upscale development. Many buyers today have been mesmerized by beautiful homes that are too big, and egged on by realtors and enabled by banks, bought more house than they could afford. Even when people get pre-qualified by banks, the amount of home that a consumer can theoretically afford might really leave him “house poor” because they did not consider many costs of ownership in the new neighborhood. Buying a house on a such a tight budget that there is nothing left for a new shower curtain, a night out, or an emergency repair quickly takes the joy out of homeownership; a major life crisis or job loss can result in equally quick foreclosure.
Many news stories have focused on unscrupulous mortgage brokers who took advantage of uninformed consumers to tie them into unfavorable loans, but some consumers were knowing parties in schemes that put them in homes beyond their means. Some banks were too liberal in granting loans to questionable buyers who presented information that could not be verified, but sometimes people did not provide complete and honest information to lenders either. Personal greed and irresponsibility figured heavily in the crisis.
The person who should answer “YES” to the question of home ownership now is someone with good credit, a stable job, a down payment, and reasonable expectations of what he wants vs. what he can afford. For the responsible person with a desire to be a homeowner, who meets the financial criteria, there are unique opportunities in the current marketplace.
- Many foreclosed homes on the market offer great bargains for qualified buyers.
- It’s also a buyer’s market with most pre-owned homes on the market.
- Though there may be less negotiation possible on new construction, especially for upgrades, federal and local tax incentives for new homeowners may put a brand new home within the realm of possibility.
While it’s true that lending institutions are less likely to stretch out to grant questionable loans this year, banks are still committed to making mortgage loans to prequalified buyers. They still offer pre-qualification services to give would-be buyers an indication of how much house they can afford and whether they would qualify for a mortgage. Good real estate agents are still interested in matching buyers with homes in their realistic price range. For qualified buyers, this is a great time to enter the world of home ownership.