For some buyers, it is the best of times and for others, the worst of times
Homes in many areas are selling for as little as half of what they were selling for two years ago. But, with the number of
foreclosures continuing to rise in
many markets, it's also hard to determine how much lower
home values will drop. Also the buyer competition is fierce with multiple offers on almost every good
The lending situation is difficult, too. While
rates on many types of loans are at historic lows, fewer people are qualifying for them. It will pay to prepare a little before you begin house hunting.
1. Put together a decent down payment, but not at the cost of your emergency savings
After the run away markets of the past few years, you will need a substantial
down payment to get good financing. The no-money-down era of lending is gone, and
buyers should expect to put anywhere from 5% to 20% down, unless they qualify for an
FHA loan, which requires 3% down (3.5% as of Oct. 1,
The less you put down, the more you're going to pay for
But be careful not to drain your bank accounts, either, in this age of financial and job uncertainty, Buyers should practice making six months of mortgage payments into a bank account to use as an emergency fund. This isn't the time to be buying a house and exhausting everything
you have in the bank.
2. Choose a lender and loan officer wisely
Selecting a good mortgage broker or
lender is one of the most critical and difficult tasks for buyers. As a buyers you should start out the old-fashioned way, by asking for referrals from friends and relatives. Buyers should ask how long a loan officer has been in business, search the internet to see if his or her name is mentioned in unflattering or criminal ways and check his or her record with the California Department of Real Estate.
Look for originators that are FHA certified because they have qualified by taking more steps get that status and because it gives buyers the option of an FHA loan. FHA has had more favorable rates compared to other loans lately and they require smaller down payments.
Once you have narrowed your list to three names, you should interview these loan officers or lenders and get pre-qualified with at least two of them to see what range of options they can offer. A good loan officer, will ask a lot of detailed questions about your income and assets up front, so there will be less of a chance for surprises when it is time to get approved for a specific loan.
3. Get pre-qualified as early as possible
There are a couple of reasons for this. First, as a buyer you need to
know how much house you can afford and what kind of money you will need for down payment and closing costs. "I tell all my buyers, 'Let's start with the right step. Let's make sure you qualify, and make sure you know what amount you qualify for'.
There's no way to get good estimates on rates, unless you pre-qualify, because the lending practice has changed dramatically.
Clear this hurdle and ask for the
RESPA good-faith estimates and the costs associated with those rates to use in your calculations. This is simple and doesn't require a lot of documentation. That comes later, when you get pre-approved for a purchase.
Getting pre-qualified early also can give borrowers with
decent credit time to make small adjustments that will affect their credit score, and get better rates.
Credit scores are put in bracketed ranges for pricing, so missing a range by a digit or two, could set you back 1/8 to 1/4 of a point over the life of the loan add to your total closing costs.
Get all your documentation together, pay stubs, bank statements, etc., before you
start looking at houses.
4. Reduce your exposure to risk
Once you have selected a mortgage broker or lender, it's time to start checking out houses. Make sure your agent is
knowledgeable about the areas you're interested in before you take your first
In addition to analyzing trends in value, agents should be scanning foreclosure data (from
notice of defaults to
bank repossessions) to make sure they know where the deals are, and whether or not there are so many foreclosures in the
neighborhood that they'll pose a threat to home values in the years ahead.
In the foreclosure capitol of Stockton Ca, most properties are selling for half of what a property sold for
just a few years ago, even though some properties in the area are listed for much higher.
Once you've found a property you want to make an offer on, ask for a
contingency in the contract that lasts longer, through closing if you can manage it, that will allow you to get out of the deal without penalties if your financing falls through.
5. Get a rate lock
The turmoil in the financial markets has had rates really fluctuating, making it difficult to know when to lock in a rate. Your best strategy is to work with a lender who offers a float down. This is a chance to renegotiate your rate if it drops substantially, by a quarter-point or more. So, before you settle on a lender, ask if they provide this kind of flexibility to borrowers. You still should lock in a rate within 30 days of closing.