I think it is safe to say that the recent market conditions are something most of us have never witnessed in our lifetimes.  For those of us in the mortgage and real estate industry's, it's been pretty scary since August of last year.  I've had a number of friends, relatives and old clients ask me my opinion in regards to the current crisis.  I can only relay what I'm witnessing, but I have few answer to give them.  Frankly we've not seen turbulence like our current market since before I was born.

Therefore a call I received tonight was an excellent example of what type of advice we need to be giving our clients.  The gentleman I spoke to tonight is in a relatively good position financially.  He and his wife make well over $120k a year, and they live in a 1200 square foot home with a basement.  Their current mortgage is around 250k, and they have a house payment that is easily handled at this juncture.  The real estate agent that referred the couple to me wants to list their home and help them buy a new home due to a recent pregnancy.  They need more space but are unsure if it's the right time to purchase a home.

We spoke for over an hour.  My prospective client is in the commercial loan industry and it's refreshing to speak to someone with some understanding of current conditions.  The gentleman found a fantastic deal that is held by a bank, but the bank has been resistive to current offers.  His dilemma is, "Is the deal really as good as it sounds, $400k with current appraisal at $649,000.  Will the extra payment be worth the risk of deteriorating market conditions?  Would it be safer to just refinance his current first and second and sock away as much as he can.

Normally it's a not much of a decision.  Go for the new property, especially if you can get it at such a steal.  The reality is much more difficult.  The home is in a stable area, but for how long?  Utah's economy has been fairly consistent and strong, but will the recession and unstable mortgage conditions destroy the local market.  Now more then ever I need to be able to guide my clients to make the best decision possible.  

I told my client that if it was me, I'd make sure I had 6 months worth of expenses in the bank.  The other factor would be to eliminate cash flow obstacles as quickly as possible.  Then I'd consider what kind of damage a larger loan would have on his overall cash-flow and weigh that against any further debt that was still outstanding.  Then and only then would I make the decision to purchase a new home.  Luckily he's not in bad shape, and meets the basic litmus test that I suggested.  So it really comes down to pulling the trigger on a payment then would be $400 more then he's paying now.

Finally he asked if me if the bank refuses to accept his offer, is it really worth pursuing another home.  I told him it still maybe a great time to purchase, but there really is no way to guarantee that if conditions continue to plummet that he'd be making the best decision for a short term investment.  If he's looking at it as shelter and a place to raise his family, that as long as he doesn't over stretch in terms of his monthly payment, that the decision to buy a home is still as good a move as it ever has been.  Furthermore, if his income level can be maintained, and when the market rebounds, that he'll be in a great position and happy he made a wise decision.  If the economy does not improve or it gets uglier, then the good news is he's positioned debt free, with reserves to survive any gusts from any financial storm.

I really think mortgage and real estate professionals need to take the lead at this point and guide their clients with extreme care.  Attention to your clients financial preparedness is key in these troubling times.  No longer is it acceptable to push your client through when you know he or she is going to find it hard to cope with the payment.  No longer is it acceptable to just push through new purchases when you know your client has nothing in actual reserves.  Look, I need more closings like everyone else, but helping someone into a bad loan maybe a good solution to your financial woes, but in the long run will hurt you in reputation and future business.