The recent drop in real estate prices
may have been painful for sellers,
but for those looking to buy homes, the decline in values coupled with the
decrease in mortgage lending rates may
spell the best opportunity in years. It
appears the decline in the market may
have leveled off and, historically, the leveling off period has preceded the next
market upturn.
Best of all, buyers can still secure
mortgages that don’t require huge down
payments.
“The bottom of the market may be in
sight,” says Tony Taveekanjana, senior
vice president for the Residential
Mortgage Division at Fifth Third Bank
(Tampa Bay). “The number of new housing permits has started to increase and
the prices of resale homes are no longer
declining. All of this points to a leveling
off in the market. The current market
conditions have increased the affordability index for qualified buyers, but the
key is not to wait too long because more
stringent loan qualifications may be
coming.”
Smart Business learned more from
Taveekanjana about how buyers can
cash in on the current real estate market.
What are the best opportunities in the
market?
Here in Florida, we’ve had a substantial decline in home prices. The weather
is great, the schools are good; so for
many people, this market represents a
golden opportunity to own a home.
Foreclosures aren’t for everyone.
However, those houses are often best for
people with good home improvement
skills and a lot of time to put some TLC
into the property. But with real-estate-owned properties, you might be able to
secure the house and the financing
directly from the bank currently holding
the property. Look at each bank’s Web
site for available properties and seize the
opportunity because banks have no
motivation to be property owners. Even
if a well-tended resale property is best
for you, the average loan amount for a home here in the Tampa area is now
below $200,000, and that opens the door
for some very attractive loans.
Is it still possible to get a loan without a
large down payment?
An FHA loan allows you to finance up
to 97 percent of the home’s purchase
price, if the loan amount doesn’t exceed
$292,500. So you only need 3 percent
down, and of that 3 percent, part of it
can be used toward closing costs. The
interest rate is also very competitive; it’s
comparable to what banks and mortgage
lenders are charging for 30-year fixed
loans. If you have a military background,
you can get 100 percent financing
through a VA loan for loan amounts up
to $417,000.
Are adjustable rate mortgages still a good
way to go?
If you don’t plan to be in your home for
more than five years, adjustable rate mortgages with a fixed period of three to
10 years can still be a good vehicle to get
into the market. Starting interest rates
are in the low 5 percent range, so if you
know you want to take advantage of the
current prices and perhaps move into a
different home in a few years or use your
home as an investment, this type of loan
is still better for those buyers than a 30-year fixed mortgage.
Have lending qualifications changed?
Lenders are looking for security, so
having a good FICO score, a low debt-to-income ratio as well as history of no late
payments, especially no late mortgage
payments, is important. But if you don’t
meet all the qualifications, you may still
be able to jump into the market by following one of these recommendations:
First, before applying for a loan, get a
copy of your credit report and clear up
any errors. If you don’t have a stellar history, you may have time to establish a
better track record before home prices
return to preslide levels, and second,
consider an FHA or VA loan if you have
a less than perfect credit. The qualifications are asset-driven, not credit-score-driven. So if you have money in the bank
and a low debt-to-income ratio those
loans could be a possible option.
Why is the timing vital?
Besides the fact that you want to get
into the market before real estate values
begin to rise, banks have not yet fully
instituted rate premiums for less-qualified borrowers. But, that change may be
coming and very quickly we might see
risk-based pricing where lenders raise
interest rates for borrowers who don’t
meet all the criteria. The qualification
guidelines will only get tighter from here
and, as home values begin to rise, you’ll
qualify for ‘less house,’ unless your
income rises substantially.
TONY TAVEEKANJANA is senior vice president for the Residential Mortgage Division at Fifth Third Bank (Tampa Bay). Reach him at
(813) 306-2609 or [email protected].
