The Home Buyer Financing Fallacy

September 6, 2011 By 2 Comments

For many months I’ve been hearing via almost every media channel out there that today’s home buyers are struggling to get financing – that banks have too high of standards and that many people are not able to get a loan. Funny thing is, that’s totally untrue.

Buying a home is not only a big emotional step, but it is a huge financial step as well.  You’re taking on a fixed location and a fixed set of costs for many, many years to come.  For most people, their home is their largest single asset.  For quite a few years we found that some lenders (certainly not all) would offer almost any amount of loan to almost anyone.  I swear at the peak of the housing market, a gerbil could have been approved for a “NINJA” loan.

So after years of crazy loans and billions in losses, banks have now become so hesitant to give out a loan that you have to have perfect credit and a huge down payment to buy a home, right?  Wrong…. WAY wrong.

Today people need to be able to demonstrate a history of managing their credit well – i.e. making payments on time, having other loans/credit cards, etc.  They also need to have a stable career, which typically means 2 years of job history in their current line of work (schooling is taken into account for recent grads).  Finally, they have to have 3.5% down payment money, most of which can be gifted to them from a family member if necessary.  Does that sound crazy to you?

From my conversations with several different lender friends, today’s lending requirements are still less strict than they were in the 1990′s.  So in the greater context of home financing in the last couple decades, it is still easy to get a loan if you are actually equipped to handle such a responsibility.

What has really made life tougher is that now each loan has no margin for error.  Each loan application is being reviewed, re-reviewed and reviewed again.  The underwriting department will often come up with what seems like crazy requests for documenting every last item of your credit and income.  While this can seem very overblown, they are doing so because they don’t want to go through a single new foreclosure if they can help it.  Unless you lied or “forgot” to mention something on your credit app, almost all buyers are still making it to the closing table… though sometimes a few days later than planned.

So if you’ve paid your bills on time and have some job stability, I highly encourage you to talk to a mortgage broker – I bet you’ll be pleasantly surprised.  If you question whether you would get approved, I’d suggest you still talk to a mortgage broker to understand your current situation and then reach out to the Minnesota Home Ownership Center to get credit counseling and/or home buying advice. The right efforts started today will put you on a path to home ownership in the not-to-distant future.

Filed Under: Info for Buyers, Media, Mortgage Rates

2010 Twin Cities House Prices – Fall Forecast

September 22, 2010 By 3 Comments

Twin Cities Median Sales Price – All Properties

Median Sales Price- Twin Cities - All Properties

(image courtesy Minneapolis Area Association of REALTORS)

What does the fall and winter 2010 hold for Twin Cities home prices? If the last couple years are any benchmark, we should see median sales prices drop substantially… most likely back to the $155,000-$160,000 range that we have seen the last two years.  The fact that buyer activity has slackened since the expiration of the tax credits and our very seasonal market make this a pretty safe bet to make.

It is important to keep in mind that Median Sales Price can be useful but also deceptive – it doesn’t take into account the type, size, condition or location of the properties that are selling – it just looks at what has sold in the month and picks the price that is in the middle of all those sales prices.  A lot of what sells in the cold months are houses that must sell for reasons like relocation, foreclosure, estates, etc.  Many sellers are “fair weather sellers” that aren’t desperate to sell and therefore take their house off the market in the colder months or simply do not aggressively drop their price to sell.

In fact, when separating Median Sales Price out by traditional sellers, foreclosures (bank owned), and short sales we find that there really isn’t nearly as much variability as what the composite numbers show:

Median Sales Price by Type of Sale


(image courtesy Minneapolis Area Association of REALTORS)

Will Median Sales Price drop this winter? Yes.  Will actual home values drop this winter?  If history and seasonality hold true, yes… but not as much as what some of the market statistics will make it look.

Filed Under: Community Issues, Foreclosures and Short Sales, Info for Buyers, Info for Sellers, Market Stats, Mortgage Rates, Opinion Tagged With: , , ,

Q&A: Should I Refinance My Home?

September 10, 2010 By Leave a Comment

With the ultra-low interest rates right now a lot of people are wondering if they should refinance their home.  It can make a lot of sense for anyone planning to stay in their home more than 3 years – but every case is different and there are no hard rules.  It is important to take into account the specifics of your situation.

Some people don’t have the money to refinance.  One option is to “buy up” the interest rate for discount points, which would mean you would have a higher than market rate interest rate but the higher rate would be used to offset your closing costs, meaning you would need to bring very little if any money to closing.  The increased interest rate will be with you for the life of the loan but if it is the only way you can refinance, something is better than nothing.  The higher interest rate will cost you more overall after around 2 years but before then you are actually money ahead.

A lot of people are “under water” or “upside down” on their mortgages – there are numerous government programs that may be able to help them refinance and their lender may be willing to provide some options too.

The Minnesota Home Ownership Center has a recent post with more on this topic and has honest and independent counselors that can help you evaluate your options.

Filed Under: Community Issues, Mortgage Rates, Questions and Answers

8 Predictions for 2010 Twin Cities Housing Market – August Update

August 24, 2010 By 3 Comments

Below you will find my predictions from a January 7, 2010 blog post and my comments on each of those predictions as of August 24, 2010:

  1. Foreclosures will continue to come on the market and many will be scooped up quickly with multiple offers.
    Correct!  This has been the case so far this year, though this was certainly the easiest prediction I made – the months supply of foreclosures is still very low – 2.8 months currently – but has ticked up a little in the last few months.  Unless we see 4+ months supply though we’re still likely to encounter many foreclosures with multiple offers.
  2. The “next wave” of foreclosures won’t show up till AT LEAST July – and likely later than that since there has been no uptick in sheriff sales yet.
    Correct! HousingLink’s data shows foreclosures are increasing in numbers in the last few months but there is no huge wave of foreclosures yet in view – the activity is elevated from 2009 levels but not yet at 2008 levels.  We may see 2010 end with the highest number of sheriff sales on record but it won’t be that much higher than 2008′s.  New bank owned (REO) properties hitting the MLS are still down 10% versus last year at this time but we’ll see that number tick up some as the sheriff sales from the 1st half of the year get listed for sale in the 2nd half.
  3. Short sales will also continue coming on the market but we’ll see more of them successfully close.  Some banks will learn how to get short sales done quickly but some will still take months to even reply.
    Correct!  New short sale listings have largely flattened out.  Short sales are a larger percentage of our sales each month than they were a year ago – depending on the month approximately 1 in 8 closed sales is a short sale.  Some banks are responding a little quicker but it is still taking 3-5 months for many to respond.
  4. Mortgage rates will be in the 5% – 6%, with rates climbing as the year goes on.
    Wrong!  I’m thrilled I was wrong on this one – interest rates have actually been sinking and I’ve seen some quotes for 30yr fixed rate mortgages in the 4.25% range in the last month!
  5. Mortgage underwriting standards will continue to tighten, meaning soon you will need to go through one of those airport naked-cam scanners to get approved for a loan, and then need to have your whole family go through one for a 2nd screening 2 days before closing.
    1/2 Correct: While the Minneapolis/St. Paul International Airport is in the process of rolling out the full-body scanners, luckily lenders have not.  Lending guidelines have softened a little on the higher-end – down payment requirements are a little lower and interest rates on jumbo loans have definitely improved. Lending rules in general have continued to tighten though – and the FHA mortgage product in particular – has gone through several changes.
  6. Median sales prices will remain flat or tick up slightly - foreclosure prices are at their bottom but short sales and traditional sellers will likely drop a little further but higher-priced homes will be selling in greater numbers, pushing the Median up.
    Correct!  The tax credit expiration has skewed all these numbers for a few months but in general this trend is right.  Take a look at The Thing for your own take on house prices.
  7. The $1M+ housing market will still be very slow and the $500k-$1M will only improve slightly – since jumbo mortgages are still tough to get these houses have fewer potential buyers.
    Correct: The higher ends of the market are starting to loosen up some with the improved lending options I mentioned above – inventory in the higher price points has fallen and the $500k+ year over year sales activity is relatively flat, which is better than some of the lower price points.
  8. Total inventory on the market is likely to continue its 2009 fall (20% in 2009) – dropping to numbers we haven’t seen since 2005.
    Wrong!  We were on the right track with this till the tax credit expired and now we are adding inventory at a healthy clip.  The good news is it isn’t more sellers listing properties that’s the problem – it is that fewer buyers are buying.  Much of this is likely attributable to the tax credit expiration but we are not sure how much.

Based on my own scoring of my predictions, I stand at 5.5 out of 8 correct, which I don’t consider too bad considering how unpredictable this market has been so far this year.

What do you think about my predictions?  What do you see happening in the housing market?

Filed Under: Community Issues, Crystal Ball Projections, Foreclosures and Short Sales, Info for Buyers, Info for Sellers, Market Stats, Mortgage Rates, Opinion, Personal Experiences, Short Sales, special financing, tax credits Tagged With:
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