As a Mortgage Broker and Real Estate Instructor I often play the role of a buyer and ask the agents in class "Why should I buy a home?"  It's always amazing to me the answers I receive. Things like "It's a good Investment" or "because you can deduct the interest or my favorite because the house will go up in value!

For many of the buyers in today's market these answers, though tried and true, don't jell. Let's look at what a typical buyer thinks of these reasons.

It is a good investment - Say this today and a buyer will look at you like you have horns growing from your head. Every day we hear on the television, radio, the internet and the newspaper how home prices are going down. Why would someone believe that buying a home is a good investment. Yet time and time again that is what I hear in class.

Because you can deduct the interest! - This is another good one. How many of you would sign up for an tax write off where you give me $3 and in return It will give you $1 dollar back. That is a great deal isn't it! While this answer may suit someone above a certain level of income, according to a economist friend of my, only half of the people who could take the mortgage interest deduction by itemizing do so while the rest take only the standard deduction without itemizing.

Home values will appreciate. - Again current and past history shows that while this may be true most of the time, it is not always guaranteed. In fact, according to the book "The Sub-prime Solution" by Robert J Shiller, homes did not go up from 1929 till almost 1954. The US experienced zero appreciation for over 25 years. Home values do not always go up and sometimes they go down.

Let me tell you a reason why some one should buy a home, even in today's market. 

Inflation Hedge and Freedom.  Think of it this way. Even though gas prices have dropped from the summer highs how many of us would sign up for $2 a gallon gas guaranteed for a year? How about two bucks for 5 years or even better for life!  That is what you do when you buy a house.  You lock in a house payment for 30 YEARS! Think about it. How many of us would liked to lock in a price on something from 10 or 20 years ago. This one factor alone is a great reason to buy a home.

As a bonus, if you work at it you can pay off your house and reduce your housing costs even more. I recently read a book called "The Top 10 Distinctions between Millionaires and the Middle Class" by Keith Cameron Smith, ISBN 978-0-345-50022-9. In the book he talks about how millionaires strive for freedom, freedom of time, freedom from money worries and most of all freedom from debts that is eats at your income. 

I think these are two excellent reasons for buying a home, even in today's turbulent market. It is time we get back to the core reasons of home ownership. Something the consumer can understand.  The argument's for investment, tax deductions and appreciation are good as well but remember they are just icing on the cake!

Next blog topic: Why buyer's representation is critical today more than ever!

Let's look at Seller Funded DPA for a moment.  The main reason folks in charge gave for not liking this program was that it "Increase" the purchase price, ultimately driving up home prices.

However, any assistance ultimately drives up prices. If a seller pays closing costs, it drives up the price, if a REALTOR receives a commission, it drives up the price, ifGovernment lets us write off the interest, it drives up the price and if we finance the property, it drives up the price.  All incentives ultimately drives prices up.

The second argument is that 100% financing got us into this mess. Let me be clear. While it is better to have skin in the game ie a down payment, what really caused the problem with 100% financing was stated income!  Why we, loan originators, them, lenders, those, rating companies and others, the buyer of tranches thought it was a good idea to let some one with a bad credit score anddocumentalble income state the income is the question. Who is surprised that if we let them lie about their salary income, there would come a time that it would bite us! (And boy did it_

With that being said, Full Doc 100%  financing is more risky, which is why a borrower should pay an higher insurance premium, just like car insurance, for that type of loan. If FHA is used for it's original purpose, to spread risk among many loans, they could cover future lossesthru higher rates. (See FHA Secure) and MIP.

The government's solution is to provide TAX PAYER FUNDED Down Payment Assistance instead. Wouldn't this create the same risk as SF DPA?

I am all for a GRADUAL phasing in of down payments over the next five years. But when we are trying to stabilize the housing market and theecomedy, Congress is not making much sense right now.

As always, I appreciate all comments and look forward to a stimulating dialog - David Rider

The Fed’s just announce that they will purchase up to 600 Billion of Mortgage Back Securities from the Big Three (Fannie, Freddie and Ginnie)

This has already had the effect of lowering interest rates TODAY.  While I am not a huge fan of refinancing, most of the time people send the savings instead of putting it back into the property; this could be an excellent time to check out your options. 

I don’t see the market recovering prices anytime soon in the next few years so lowering your official payment could give you the opportunity to pay down the mortgage faster or other debt that you might have.

In today’s market, it is very important to understand that the only way to shore up your personal finances is to reduce the debt that you owe.  In the book “The Top 10 Distinctions between Millionaires and the Middle Class” by Keith Cameron Smith, the first chapter talks about freedom vs. comfort. To strive for freedom from debt gives you more options than anything else.  With today’s lower rates you could soon be on the path of freedom.

David Rider is a Mortgage Originator with Sterling Home Mortgage LLC as well as a former broker and owner of real estate companies. 

In our current economy, it seems like we have one foot on the gas and one on the brake. One the one hand we are hearing from the government that lenders are not lending enough of the bailout money to consumers.

When you look at this and tie it into the “Mark to Market” accounting practice then you realize that all the money we are infusing to the banks will NOT go to loans but instead boost the capital reserves of the individual bank.

Think of it this way, if I am servicing one million dollars of loans, which would allow me to use that one million as collateral to lend out 15M.  But due to Mark to Market, I have to evaluate the million that I am receiving and value it like I had to sell it today, even though it is performing within tolerable levels. 

If I had to “write down” the value of the million dollars asset to $500,000 I would still have the 15M out in loans giving me a leverage ratio of 1:30 instead of 1:15.  Since the Fed’s guideline require a leverage of no more than 1:15, I am out of the aggressive lending world until I a, reduce the money I have lent out (fat chance) or b, raise Capital back to 1 million.  Either way, with Mortgage Back Securities being priced for a 25 to 50% default rate it makes for hard lending.

The truth of the matter is if 50% of our mortgages fail, lending will not be the question, Ammunition and self preservation during the anarchy will become the number one priority.

At the same time the big Three, no not the car manufactures’ but Fannie, Freddie and Ginny are requiring more down payment, less investor homes loans and taken away stated for the true Self employed.

The way to get out of this mess is to attack both sides, Supply and Demand. Bring back Seller Funded Down Payment Assistance for the buyer, increasing demand, work with folks currently in trouble thru loan mods and true short sales, keep the tax loan of $7500 and keep FHA limits up and allow qualified investors ie, full doc, 20% down investors to have more than four mortgages and we could see a significant portion of our excess inventory soaked up.

It is time for a coordinated effort to recover the housing market, which in turn will bring peace of mind to home owners, stimulate the economy and stabilize our market.

Just one person’s thoughts and as always, I am open to discussion.

Everyone struggles with taking action. I know I have the challenge and you might too. I am taking steps by placing on my computer the phrase "Is this the most productive thing I should be doing." Is this dollar productive? Is it making me money.  When action is needed but not taken I remind myself what the reason for the action is. It is normally not the action that is important but the end results. If I take this action then this will happen and then this and that will bring me this emotion. The size of the WHY is the motivating factor. As Nike says "Just do it!"