Home Buying Options in a Crappy Economy
Tue, Sep 20, 2011
Homeownership is a goal for many Americans. Personally, I’m enjoying the best of both worlds right now - I rent from my parents, so I don’t have any weird restrictions on what I can or can’t do, but I will eventually take over the mortgage (once my credit improves) and become a homeowner at last.
The economic downturn has resulted in a total buyer’s market - there are so many homes for sale or in foreclosure it’s ridiculous. The flip side of that coin, though, is that it’s not as easy to get a mortgage as it used to be. If something happened to my parents and I had to take out a mortgage right now, I’m not even sure I could qualify. As much as I don’t like to think about it, I could end up being forced out of my home if I’m unprepared. My situation, while unique, is only one of many reasons it might make sense to think about options for buying a home.
Whether you’re considering refinancing, buying for the first time, or buying a different home, or even if you’re just interested for future reference, it’s important to know what options are out there.
Conventional bank loans. It’s difficult to borrow from a bank right now, but it’s definitely not impossible. If you have an existing mortgage through a bank, or if you have excellent credit, it’s likely you will be able to visit a local branch and walk out with approval. Banks offer competitive interest rates, as well as both fixed and adjustable mortgages.
Mortgage brokers. Many people utilize the services of a mortgage broker to get approved for a home loan. A broker works with many different lenders, from banks to companies that specialize in mortgages, to find the lender that best meets your needs. This is often an option for people who have had difficulty qualifying for a bank loan. My ex-husband used a mortgage broker to purchase his home (which he later lost to foreclosure) because he had a shaky credit history that prevented him from borrowing from a bank.
First-time buyer programs. There are many options to help first-time buyers purchase their dream homes. These programs (often government-sponsored) tend to have restrictions (usually, your income must fall within certain limits) but can provide down payment assistance, 0% financing for a period of time, or grants for improving your new home. Examples of these programs include FHA loans and VA loans.
Private individuals. Believe it or not, there are still people willing to sell their homes on contract. This option has regained favor due to the high numbers of people looking to escape from homes they can no longer afford. Generally, you would be expected to pay a certain amount down, then monthly payments for a specified period of time. If you purchase a home on contract, make sure an attorney reviews all documentation before you sign on the dotted line.
The Bottom Line
Contrary to what the media would have us believe, there are still a number of options available to those interested in homeownership. The increase in foreclosures has certainly resulted in tighter standards, but those are in place to make sure you are purchasing a home you can afford with terms that work for you and your family.
If you are considering a mortgage for any reason, consult with a finance professional to review all the options available in your geographic area and for your income level. Make sure you understand all the terms of any potential loans - if something doesn’t make sense, ask someone before you sign!
Owning a home has long been part of the American Dream. It’s still possible to achieve with the right information and research.
Very good suggestions! Getting that credit rating up will help in getting a loan with a lower rate of interest. Good luck to you!
In Canada we have a first time home buyers plan which basically allows you to get a tax return credit on the purchase of your house. While you can only get this once it sure does help at the time with bills.
This is very true, home-ownership is still possible. We just have to be a little more careful and work a little harder at it, which I think is a good thing. It creates less of a possibility of defaulting on the loan and makes sure we are in something we can afford.
We are back to the way it should be! Normal down payments and verification of income. Unfortunately there are a lot of casualties in this mess including the economy.
Credit Unions are a good bet for the conventional side; they are offering record low rates as a way to tap into the "big bank" oligopoly over the mortgage market.
They are also talking double-digit inflation for rent prices. With home prices as record lows and mortgage costs at record lows. Buying into real estate is looking very good.
Great list!
This reminds me a little of the first HOA meeting we went to after buying our condo (mortgage through a big bank). Many people were (rightfully!) concerned about being able to sell their condos, and this woman stood up and said NO ONE was able to buy a condo in our complex, because the complex isn't eligible for FHA loans right now, and how the management was screwing people over and NO ONE had bought a condo in the past two years. Then some other guy yelled at her about how there are all these international students coming in whose parents buy them condos with cash (huh?). And we were like…"Uh hi, regular old Americans from middle class families, we bought a condo this year".
I'm not saying it was easy- boy was it NOT easy! But it IS possible.
Awesome post! It is quite interesting how interest rates have never been lower, but banks are wanting your next child as collateral. I am renting until I become debt free and I will be saving 20% down. I have owned several homes in my life time, this time I want everything to be right.