Let's take a look at this video on sub prime
mortgages. The video host interviewed mortgage broker Richard
Smith in 2004 who was 'riding high' on jumbo mortgage loans (mortgage
loans over $417,000). Mr. Smith specialized in low payment mortgages
on high price houses, extending the mortgage term to 40 years
or more! People could have a 1/2 million dollar home for as low
as $1200 a month! "It's really all about driving the payment
down as low as possible so that people can afford the payment."
(Continued Below)
When the same broker was called upon recently,
there was nobody home! The mortgage lending landscape has changed!
Tina Mulligan, a mortgage lender says you need two things before
you can qualify for a mortgage loan right now:
i) A good down payment so that you have an investment
in your property
ii) Higher credit scores (at least over 680)
iii) Enough income to substantiate the purchase
of your house
35 mortgage lenders have gone out of business
in 2007 (precisely in the last 6 months). Tina quotes, "When
the market slows down, this will affect the value of properties."
This means in a market slowdown, home prices will decline as sellers
find it hard to find buyers who are willing to pay the higher
prices, thus driving prices even lower. In other words tighter
standards and fewer lenders mean fewer qualified buyers.
Stacy Johnson, CPA quotes, "An unwinding
real estate market that ultimately leads us in to a nationwide
recession. Possible, but not likely! By the way, this is not the
first time that lenders have over lent!" So Mr. Johnson is
partially blaming the sub prime mortgage lenders for this recession
in the housing market because in order to make more profits and
sell more homes, they allowed people to take our $400,000 mortgages
for as low as $1200 a month!
What's in for the mortgage & housing market
in America? Do you have any thoughts/comments? Feel free to post
below!
->
It is important to get pre-approved for a mortgage
loan because most real estate agents will not show
you any properties unless you have that letter. Getting
a pre-approved letter will avoid all the hassle, lessen
your closing costs and what's best, the process is
free!
Note: Do not settle for a "Pre-Qualified"
mortgage because that means nothing. You have to be
pre-approved, not pre-qualified!an
-> If you have a down payment
of less than 20% on your home, you have to get Private
Mortgage Insurance (PMI) that protects your lender
from your defaults. This PMI could potentially add
several hundred dollars to your monthly mortgage bill.
To get your way around that, mortgage brokers often
recommend two loans; a primary mortgage for 80% and
a home equity loan for the remaining 20%. The home
equity loan will serve as the 20% down payment clause
and avoid you having to purchase PMI. This idea was
sound when interest rates for home equity loans were
like 5%, which matches to that of mortgage loans.
However, interest rates on home equity loans now hover
between 7% - 9%, which makes them a less popular deal.
You would actually be better off buying PMI than taking
out a home equity loan.
-> The credit bureaus
literally receive millions of pieces of information
every day about consumer's buying habits, defaults
and late payments. This makes them very prone to errors.
Infact, 75% of all credit reports contain atleast
1 error. Therefore, it is advised to check every entry
that appears on your credit report.
