Time to buy? Featured

8:00pm EDT June 25, 2008

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 Tony.Taveekanjana@53.com.