Despite Tighter Lending,
Buyers Still Benefit
By Melissa Nykorchuk
Photo: © Ray Wrona / iStockphoto
With the recent government bailout of Fannie Mae and Freddie Mac, mortgage lenders are finally showing responsibility in their lending practices. Potential homeowners will find it tougher to get a mortgage than in recent years where a loan could be secured with no down payment, a subprime credit score, and no income verification. As lenders tighten their approval process, fewer homebuyers will be getting in over their financial heads. Buyers that can meet the new criteria for a mortgage will find lower home prices and lower rates, which will allow the buyer to purchase more home for their money.
With previous lending practices, it was possible to buy a home without putting any money down. Rates were reasonable, even if the borrower was unable to provide verification of their income and had a weak credit score. This lending practice was
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not only bad business for the lender, but it set up potential homeowners for financial disaster. With house prices going down, borrowers who rely on home equity as a cushion no longer have that cushion and many owe more on their house than it is worth.
As a potential homebuyer, there are a number of steps you can take to ensure you get the right mortgage for your needs. You should be saving for a down payment of about ten percent, which in the long run will allow you to have equity in your home even if the value dips. Make sure that you continue to pay debts on time so that your credit score remains stable or rises. If you have credit card debt, pay down some of this debt to increase your credit score. The closer the balances are on your credit cards to the credit limit, the lower your credit score will be. You should also be able to prove a steady stream of income that reflects your ability to pay your potential monthly mortgage payment.
House prices are down and mortgage rates are reasonable. If you are approved for a mortgage, the time is ripe for you as the homebuyer to purchase more for your money than you would have been able to even less than a year ago.
As house prices go down, current homeowners that need to sell their home are more likely to negotiate a deal that is favorable to the potential homebuyer. More houses are on the market and there is less competition among homebuyers. Instead of getting into a bidding war, which can lead to purchasing an overpriced home, homebuyers are now able to take their time and negotiate a price for the home that they want. Homebuyers do not have to feel pressured into making an offer immediately after viewing a house and can instead look around for their ideal home. |
