How should prospective home buyers (and sellers) adjust during difficult economic times? Dallas real estate professionals weigh in
Despite all the doom and gloom in the news about the economy, it’s not all bad out there right now. People are still buying and selling homes, and there are good real estate deals everywhere.
But that doesn’t mean you can do things today like you did them last year. Credit markets are tighter than they used to be, and lenders are being cautious. So what can you do to maximize your chances of getting approval?
We asked banking, real estate and mortgage professionals around North Texas to weigh in on this question: "What suggestions do you have for buyers and sellers in the tight financial market for improving their potential for approval?"
Here’s what they said.
Wells Fargo Home Mortgage
"People spend more time deciding what brand of bread to buy than they do on the biggest investment of their life. Interview a real estate professional just like you would an attorney. Ask whom they’ve sold to before. Get someone you know and trust who comes highly recommended."
Keller Williams Realty
"It’s still possible to get credit and the better your credit rating, the more options you have for financing. Interest rates are still good and prices have leveled off. Lots of factors spell out that it’s a good time to buy."
Virginia Cook Realtors
"With sellers, be priced correctly — price right on the money. Pricing is crucial right now. And if you can’t do any updating, a little paint goes a long way.
"For buyers, look for something in the new stimulus package that might help you."
Prudential Texas Properties
"For sellers, some buyers might be a little uneasy about buying right now, so have your home in top condition. Consider having it staged.
"For buyers, if you plan to hold it at least three to five years, your investment should be safe in the long run. Have two years of tax returns and two months of bank statements readily available. Stated income and no documentation loans have gone away."
"Buyers need to know the nuances of today’s lending markets and may be surprised to find a loan with a smaller down payment (i.e., 5 percent) may make them eligible for a lower rate than if they were putting down 10 or 15 percent because the loan will be protected with prime mortgage insurance [PMI]. The institution will be protected, thereby allowing them to provide the lowest interest rate available. After closing, if they so choose and have the resources, they can buy down the mortgage and get rid of the PMI and lower their payments. Because of the complexities, it’s really important to consult with a lending professional."
Archer-Ver Eecke Company
"My advice to anyone who is considering any kind of financing is to make sure that you have all your ducks in a row before you go out and find something to buy. Financing is incredibly tight right now and the criteria are extremely strict for even those people with pristine credit.
"First, you need to know your credit scores — plural; there are three of them. For mortgages, your interest rate and program eligibility will be based on your lowest credit score. If that score is below 680, it may be difficult to find financing.
"Second, you need to have cash in the bank. Lots of it. There are some programs available for down payments as low as 3 percent of the purchase price, but the interest rates arehigh and the mortgage insurance premiums are worse. I am advising my clients toput down at least5 percent. You will need to have funds for taxes, insurance and closing costs above and beyond that. You will also be required to document that you have reserves in the bank to make your mortgage payment should you face a financial crisis, so you typically need to have six months of mortgage payments in some form of liquid asset in addition to the previously stated funds. The more cash reserves you have, the better.
"Third, be conservative. The days of buying as much as you can qualify for — as opposed to what you can afford — are over. The mortgage insurance companies may require that you eliminate some debt in order to buy a home.
"The bottom line is that you should not think about buying until you have spoken to a trusted mortgage or loan advisor who can pre-qualify you. If that person does not get to know your situation intimately when you speak with them, you need to find somebody who will ask for a blood sample before they send you out to work with a salesperson."
"My firm did not do adjustable rate mortgages unless it was very necessary — we always pushed for fixed rates. If you’re going to do a mortgage, you must do a fixed rate mortgage: conventional, FHA, VA, jumbo. Another thing people do wrong is they don’t escrow and at the end of the year they owe a lot of money on taxes and insurance. There are some good buys out there but as always, you need a good real estate agent."
Allie Beth Allman
"For sellers, I suggest being open to helping with closing costs. A lot of buyers don’t want to part with their money so quickly and that might make their home more attractive.
"For the buyer, get your finances in order. Make sure you’ve taken care of any credit problems or blemishes because if you have any problems, it could keep you from getting a loan. Talk to different lenders because different lenders have different programs. I’ve had buyers get turned down by one lender who may not have the right financial vehicles and who were accepted by another lender."
David Griffin Realtors
"Sellers, now more than ever, need to be mindful of pricing and presentation. There’s competition among inventory and you have to stand out. Sellers need to be prepared for longer days on the market â€“ 90 to 100 days is not unlikely.
"For buyers, rates are low and there’s reasonable pricing out there. Also, there are more and more properties available for lease at realistic monthly rates and fair terms."
Virginia Cook Realtors
"For the buyer, getting pre-qualified has never been more important. $271,000 is the FHA loan limit in this area and FHA is more forgiving on credit and debt ratios. About 75 percent of all homes fall into this category.
"For the seller, they need to be flexible. Many offers are asking the seller to help with closing costs. They may be using all of their money for the down payment and without it, won’t get the loan. Some buyers should wait six months and pay all their bills on time.
"Don’t just shop a rate. Know your loan officer, but getting a loan right now is not the scary place newspapers would have you believe."
Prudential Texas Properties
"Real estate has traditionally been known for two components: location and appreciation (mostly the latter). Now it’s known for location, appreciation and security. For at least a little while, folks like my parents would buy a home and it would appreciate. If lucky, they purchased in a good location and once upwardly mobile in their careers, they would build equity and move up. My parents have moved three times. In all cases, they used the equity in their home and purchased for the betterment of their future.
"My parents purchased their second home in 1982 and around the same time a family friend purchased a home that to this day has never appreciated in price. Who knew? I believe something that purchasers never think about are the restrictions placed on home builders (lot size, deed restrictions and availability of apartments). Deed restrictions should keep an investment safe. If you purchased a home, did you ever review the deed restrictions? When looking for the ideal location you should not just ‘drive through’ — you should meander a ways. Check crime statistics and offender reports.
"During the holidays I found many first-time buyers following up with me right after Thanksgiving. I think the sense of security of wanting a piece of the American Dream could be a reality with the help of FHA, a good lender and the right agent.
Keller Williams Realty
"I get calls from people who’ve seen something on Craigslist [that they are considering]. Many of them turn out to be scams. If you’re looking at buying distressed property, whether a foreclosure or a short sale, it’s important that consumers do their homework and work with an agent that has experience in that specific type of transaction."
This article appeared in the Dallas Voice Defining Homes magazine March 6, 2009.