Real Estate Laundry » Tougher Mortgage Regulations

Tougher Mortgage Regulations - A Good Thing!

July 2nd, 2007 categories: About Realtors, Financing, Local Communities, Real Estate News, Real Estate Professionals

Many in the Real Estate and Mortgage industries may be groaning as they realize fewer Homebuyers will be qualifying for loans in the near future. In reality, the loose restrictions and lenient loan programs dominating the industry for several years have created some real problems for the Real Estate industry and many Homebuyers.

These problems include:

Unprecedented foreclosure rates nationwide with Ohio ranking near the top
Artificially inflated sales prices due to financing costs built in to the price of a home
Significant financial problems brought on by Homebuyers over-leveraging themselves through the available mortgage programs

The net effect of these issues has surely been a contributor to the sluggish real estate market with many Sellers needing far more than they can sell their home for just to break even.

In the recent past, Buyers choosing adjustable rate mortgages (arm) would be qualified using the initial rate. For instance if a Buyer could afford a home at a starting rate of 5%, no consideration was given to the fact that the loan might adjust to 7% three years down the road making the payments out of reach for the Homeowner. This scenario in no small way added to the number of foreclosures as Homeowners struggled to keep pace with upward adjusting rates.

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Going forward, Buyers will need to qualify at the higher rate. Though this will keep a lot of people from getting in to a financial bind, it may be a disappointment as loan amounts offered may be significantly lower.

As a Real Estate Professional I have always been careful to educate Buyers about the ins and outs of their financing decisions. It is critical that Homebuyers understand the worst case scenario as it relates to taxes, interest rates, etc. Unfortunately, many Homebuyers have been tempted by the “get it all and get it now” mentality promoted by the lending industry and in many cases they are paying the price now.

If you are considering a home purchase, be sure to do your homework. Here are a few tips:

Ask lots of questions. There is no stupid question when it comes to your financial well being.
Research on your own. The internet has a wealth of pertinent information.
Borrow based on your comfort level. Often a Lender will offer far more than you are comfortable borrowing. Purchase a home that fits YOUR budget.
Get the help of a capable Real Estate Professional. Statistics show you do not save money by “going it on your own”.

Tags: mortgage, real+estate

This entry was posted on Monday, July 2nd, 2007 at 12:31 pm and is filed under About Realtors, Financing, Local Communities, Real Estate News, Real Estate Professionals. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Buying a Home in Columbus - What to expect in today’s market said at August 30th, 2007 at 1:56 pm
[…] The last few months have certainly been a string of field days for the media. With the apparent collapse of the sub prime lending industry, tougher mortgage regulations, and lots of inventory on the market, Buyers must be stealing homes from Sellers in the Columbus area. In reality, this is not really the case. […]
Chris said at August 30th, 2007 at 3:51 pm
Hey, Man. Long time/first time.

I don’t know if regs are the answer. Big lenders assume washington will step in to bail everyone out.

THAT will only make companies continue to make dumb loans that nobody can pay for.

The biggest change that has been necessary for EVER is disposable income requirement and not debt ratio. A 42% debt ratio if you’re making 40k a year is a lot tougher than a 55% d/r if you’re making $100k a year. But, FHA, Fannie and Freddie are loathe to consider that as part of findings. And, if you look at the (real) OO loans that fell apart, you’d see that the disposable income was less than $550/person.