If you listened to Federal Reserve Chairman Bernake today his speech was meant to send the message that tougher oversight and supervision on mortgage lending is needed for future loans! He mentioned that too many home loans were ``neither responsible nor prudent'' and needed strong oversight! No duh! Where was the Federal oversight before this happened? Why did no one raise the sub-prime issue prior to a meltdown in in sub-prime when they hit the news? A contraction in credit due to lack of supervision or oversight of the Federal Government has created an issue where many sellers cannot sell, or refinance their homes. This is compounded by foreclosures on homeowners that cannot afford to make mortgage payments, and those foreclosures in turn lowering prices in many neighborhoods - which in turn pulls down home values... locking others into their home and robbing them of their equity. For years our industry have said that sub-primes represent only a small fraction of mortgages...that is like saying a little sin and vice has never hurt a neighborhood. It does! We are seeing it now! It has created one of the worse type of cycles in business which is called a deflationary spiral! The Black hole of economics! The best way to describe it is a plane going into a tail spin, it is very difficult to pull out of the spin! One way to stop it is by preventing it from happening in the first place. An ounce of prevention is worth a pound of cure! As the patient gets well, there are some hardships. In the mean time, credit tightens for future purchases.
Unless you have incredible assets 100% financing is not a smart idea at all! In fact, it will pull you down so far you cannot pull your self up in life! Sub-prime lending is risk lending to persons that have already been identified as having a historic issue with the inability to handle their credit correctly! Some people are major credit risks and will pass away from this live in deep doo because they have issues. That should not be societies problem! Obtaining a second or a third mortgage to avoid PMI is not smart! Paper equity is not a cash position in your home! Home equity should not be borrowed from except as a last ersort. Once the money is borrowed what little equity you have may actually owe more that your home is worth!
Do not take out home equity loans on your home.
Purchase a home with a substantial cash down payment 20% or more.
Buy a home that you can afford.
Do not take out 100% mortgage loans.
30 Year Fixed mortgages are a budget mortgage payments of Principle Interest Tax and Insurance.
Do not fall into trap appreciation of property vaules will cover you imprudent loan!
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Jim these are great advices. It seems that to many get in a hole because they do not save enough before they purchase. The worse? I have seen owners now on the brink of foreclosure, who continually took 2nd and 3rd mortgages to cover new cars and new toys. To many buy before they are ready."Buy a home you can afford!" Do buyers really know how much they can save if they put 20% down instead of 5%? Many seem to just want to ignore the facts.