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Is it a good time to buy a home? Do you over-sell it?

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

February 18, 2011 12:55 AM

do you think about the money or your client

Have you been reading many posts that tell us that it’s a great time to buy now? Reasons cited are low interest rates, low home values, tax buyer’s credit (in the past), because there will be mortgage changes coming soon, and so much more? Have you heard the latest news now? Two major lenders are allowing buyers with credit scores down to 580. Sounds great, doesn’t it? But wait, is it great?

Do you want an opinion from a mortgage loan officer with 18+ years of experience that thinks with common sense, and not from the sales side of things? Don’t get me wrong, I love to make money, but I also like to be practical and to educate.

Do you know why these two lenders are jumping out of the window by lowering their credit score requirements? Mainly because HUD is forcing the hands of the larger banks. But I don’t want to get into the politics of things. Besides, there have been other smaller lenders that could go down to 580 in the last year, but with little success. Let’s evaluate these new changes regarding lower credit scores.

Requirements for credit scores under 600 ~

You must have 5 percent down and the first 5 percent has to be your own money, meaning no gift funds from family members, no funds from non-profits, etc.. until after the initial 5 percent.

Qualifying ratios will be strict, trying to keep them around 31%/43%, which are normal FHA debt-to-income ratio guidelines.

Seller contribution will be limited to 3 percent.

Last but not least, the rates or pricing for these types of loans will be more expensive.

What I just mentioned above are the basic changes for someone to have a shot at getting a mortgage. But wait, hasn’t it been difficult lately to get a mortgage, even with the guidelines that we have now?

I totally understand that there are some good buyers with low credit scores for various reasons, but I would have to say that this doesn’t fit the majority. Besides, I would rather educate the borrower on what needs to be done now so they can buy in two to six months. A true professional will either know how to fix their credit or refer them to a credit specialist.

Is it our natural instincts to want to help, but we cannot overlook the basics thinking that this would be good for the buyer now. What about that person that only has 5 percent of their own funds, yet now they have used up their reserves, having nothing to fall back on in case of emergencies?

All because we slammed down their throats that “it’s a great time to buy now.” In my opinion, it’s always been a great time to buy, when the time is right for that buyer. The right time is when they have been properly educated on the home buying process and when they have more than enough cash reserves for emergencies, etc.

Let me ask you a simple question

How do you think we got into this mess in the last three years? From the government pushing Fannie Mae to make home ownership more affordable. This started in 1999 when we had 100% financing come out, and where you could have a 55 percent back-end ratio, before taxes.

Sorry, but my common sense says that you are playing with fire on that one. What about those that did put 10 percent and or 20 percent down and still went into foreclosure? My opinion is that some just thought it was better to put more down, but the loan officer didn’t go into details if you used up all of your monies. If anyone follows my posts, I always preach, “Cash is King.”

So my last question- As a realtor, how does your fiduciary responsiblity sit with what I just mentioned? Do you push that it’s a great time to buy for your commission check? Will you push the lower credit scores? Just food for thought…

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Kim Sellers

Lake Arrowhead, CA Coldwell Banker - Lake Arrowhead, CA

Lake Arrowhead Realtor - BRE#01412099 - Lake Arrow

Great information for the consumer and Realtors. I have been fortunate in my market place as it is mostly second homes and a lot of cash down and very nice Fico scores... but once in a while I will find a challenge buyer...

Feb 18, 2011 12:58 AM

Margaret Rome Baltimore 410-530-2400

HomeRome Realty 410-530-2400 - Pikesville, MD

Sell Your Home With Margaret Rome

Jeff, It is a great time to buy for well qualified buyers! Thankfully I have a few right now.

Margaret

Feb 18, 2011 01:03 AM

Paula Hathaway, REALTOR, LBA

Douglas Elliman Real Estate - Southampton, NY

...A Local Expert in all The Hamptons

Jeff: Right you are---what is wrong with the way banks think??? They have completely disconnected from the reality of what they are doing. Why? IMHO, they have not felt the pain that they needed to feel from the last "go-around"....like a naughty child, the banks got their hands slapped and nothing more--nothing to make them really, really see the cause and effect of what the did before!!!

Feb 18, 2011 01:08 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

KIM... . that sounds great and I think many realtors would love to be in your shoes. ;o) And thanks for the compliment.

MARGARET... . yes, for well qualified. But what are we saying to those that don't have much of a leg to stand on, just recovering, but we flash low rates, low credit scores, and so much more at them. I know I am coming across like a counselor now... but I think that is how we must act and think about the well-being of the consumer and not just sell something because it's there. Because if we don't act on this, we will be creating another mess down the road. As I mentioned, even those that put 10% or 20% down foreclosed. What is wrong with helping a buyer get their scores up and getting them some reserves saved... thanks

PAULA... . I am going to cut you off at the pass... We know that many lenders and investors got greedy for a decade and we are now paying for it. But what is taking place regarding the lower credit scores is that FHA or the gov't is forcing the hand of the larger banks. They tried fighting this and there is a lot more to this. My main point is not what is being offered by the banks, but how realtors are selling to the public. Just in the last 3 days, I have seen like 6 posts telling buyers that it's a great time to buy because a few large banks are now allowing credit scores down to 580. There was no education in the posts letting people know that this might not be the best avenue for them. And who knows, once they get a hold of that loan officer, what will the leave out or not educate the borrower on, just to make a deal work. And by the end of the day, are we recreating another mess and didn't learn from our lessons. As it stands, in my opinion, this could easily happen.

For those reading this post... let's look at another fact. The home buyers tax credit, that was slung around so loosely...some bought that shouldn't have bought, but they wanted that money. Some of those people are now either delinquent or are foreclosing. Secondly, the gov't didn't have the proper checks and balances set up from day 1 and it's now costing us billions of dollars because of the fraud that was committed and so much more, because they have had to to hire more IRS and or FBI agents to take charge of that mess. Just saying... food for thought.

Do we act that blind just to sell, when it might hurt us... and say,"let's worry about it when it happens?" Just saying... thanks

Feb 18, 2011 01:21 AM

Paula Hathaway, REALTOR, LBA

Douglas Elliman Real Estate - Southampton, NY

...A Local Expert in all The Hamptons

Jeff: I get your point--but not to beat a dead horse: the gov't (with the banks) are creating the havoc we are now witnessing and we as real estate agents can "qualify" buyers all day long before we sell them a house...if they want to "take advantage" of a gov't program, who am I to tell them they can't??? Who am I to say to them you better not buy that house because your credit score is so low---I personally don't credit check my buyers---the banks do that. I am willing to tell someone they can't afford a house if I don't think they can, but I ALWAYS have a buyer talk to a bank before I work with them and that is the very best I can do.

Feb 18, 2011 04:30 AM

Carol Lee

Dilbeck Real Estate - Oak Park, CA

Realtor - Agoura, Oak Park, Westlake CA Homes

"it's always been a great time to buy, when the time is right for that buyer." This says it all, Jeff- bottom line, it is always (or should always) be about the client.

Feb 21, 2011 10:13 AM

Sheila Goulart Siegel

Synergy Financial Group, Inc. - Mission Viejo, CA

Hi Jeff. I agree with you that each buyer has his or her moment(s) when the time is right. Qualifying and comfort level + ability to repay meets the right property.

May 03, 2011 11:55 AM

Alisa Delice

Coldwell Banker Residential Brokerage - Rockville, MD

Professional Realtor in Maryland & Washington, DC

Excellent Post. As an appraiser, I am constantly walking into peoples homes and lives where their situation may not always be the best. It saddens me the number of good people who have lost or are in jeopardy of losing homes due to simply not being qualified for the loan in the first place. I mean there are the instances where somebody has lost a job, or other reasons why a borrowers financial situation has changed, but more often than not, there has been little change in borrowers situation and alot of change in loan terms. At any rate, I'm just glad to see a mortgage broker that really gets it. Again, great post.

Nov 30, 2011 04:05 AM

Dinas Morenque

Rancho Cucamonga, CA

Morenque, D.

Great post. Very informative. I also want to ask if these http://bit.ly/13lW7ZD are the only factors that affect mortgage trends. It seems that you all are experts on mortgage and real estate. I need a bit of mentoring since I just started being an agent last December. Thanks everyone.

Feb 27, 2013 07:25 AM

Teresa Tims

TDR Mortgage & Real Estate Group - Rancho Cucamonga, CA

Teresa Tims

Mortgage rates rise this year, so meaning rising rates have a direct impact on housing affordability. It's just like Buyer + Seller = Price. They both matter about the price.

Sep 04, 2013 03:30 AM

Edward Upton

Brentwood, TN

How Does Falling Oil Price Impact Mortgage Rates?

Gas is cheap – pleasantly affordable even. Americans from coast to coast are saving money. I am saving money. How long will our good fortune last? It depends, how long will crude oil prices stay low?

Low oil prices are offering a hidden gift to consumers that goes beyond the gas pump: They also indirectly support lower mortgage rates.

Despite a fairly significant uptick in rates over the past week or so, rates on the 30 Yr fixed remained very close to historic lows.

Freddie Mac, who has surveyed mortgage lenders since 1973 to bring us the national average, has the 30 year fixed rate mortgage averaging 3.76% as of February 19th, 2015.

So what the heck does the price of oil have to do with my mortgage rates?

What the Heck Oil Prices Have to Do with Mortgage Rates?

From 2010 until mid-2014, world oil prices had been fairly stable, at around $110 a barrel. But since June prices have more than halved. Brent crude oil has now dipped below $50 a barrel for the first time since May 2009 and US crude is down to below $48 a barrel.

Added to this is the fact that the oil cartel OPEC is determined not to cut production as a way to prop up prices.

The price of crude oil is part of the perfect storm for mortgage rates. There are two factors that are the primary drivers:

Let’s start by first making sure that we are clear. Major consumers of crude oil will be the beneficiaries of the good fortune that is affordable crude oil.

Overall, low oil prices should benefit the U.S. economy as the oil and gas industry only accounts for about 2% of our gross output.

Countries that are primarily producers of crude, but not the biggest consumers, will take the biggest economic hit.

National budgets in many developing countries are based on the expected price of crude oil. When those expectations are not met, neither are revenues.

Revenue issues put pressure on the currency and markets of the oil producing economies which adds risk in the eyes of investors.

That moves risk-averse investors to safer investment vehicles. It moves them, at least right now, to U.S. markets. That’s our first factor.

Apr 02, 2015 02:49 AM

Chip Kron

Educate2Earn - Scottsdale, AZ

Great Post! Very Informative!

Mar 01, 2016 02:27 AM

Dave Parker

American Pacific Mortgage - Los Angeles, CA

Your lender for life

Hi, I am just getting started and after reading a couple of your blogs, I find them very informative. And might I ask where do you obtain your information?

Mar 14, 2016 07:36 AM