How does the current credit crunch impact a Lawrence buyer?
With all of the media coverage of our current economic situation, many prospective home buyers are wondering where they stand. The truth: not much has changed in the lending world regarding owner-occupied real estate. The days of 100% financing for bad credit borrowers are gone but if you have decent credit and 3% to put down, chances are that you won’t have any issues securing financing.
The credit crunch is mainly a problem in coastal areas where the price of housing has far out-paced income levels. In parts of California, for example, a starter home that would cost about $150,000 in Lawrence can cost as much as $700,000. In order for the buyers in these areas to qualify for a loan, they chose risky, adjustable rate or even optional payment mortgages with below market teaser rates that never would pay down any of the principal on the loan. Once the prices started to decline, the appreciation that these buyers were counting on to provide enough equity to refinance in to conventional financing was non-existent. When their teaser interest rate expired they were stuck with a payment that in some cases doubled, causing them to default on their mortgage. Many were forced into foreclosure. In our area, these risky loans were rare.
In Lawrence, some buyers took advantage of 100% loans simply because they were available. Most of the time, the buyer had cash on hand that they elected to use on property enhancement instead of down-payment. Most of the residents of the Mid-West have a conservative financial mind-set and are able to meet the modest down-payment requirements that are still readily available.
It’s a GREAT time to buy! Especially for first time home buyers. Our market currently has an abundance of inventory that is priced right and Sellers that are ready to negotiate.
Additionally, congress recently passed a housing stimulus plan that provides a $7,500 tax credit to buyers that have not owned a home for the past 3 years. In many cases this credit will more than re-coup the down-payment and closing expenses related to a home purchase. Once you factor in the tremendous tax advantages that come from home ownership, principal reduction that comes from paying your mortgage and the eventual property appreciation that will return once the dust settles, the actual cost of owning your home can be much less than the cost of renting. Home ownership will play a large part in your overall financial health and over the years will likely prove to be the best investment that you can make. The saying goes “Buy low, sell high”; this is the first time in decades that you have the opportunity to buy at the bottom of the market. Take advantage of it now because it won’t be here for long.
Steve La Rue