April 12, 2012
The only thing worse than not having enough information when you need to make a decision on something as financially impactful as obtaining a home loan, is having inaccurate information. Since the mortgage and real estate markets came unraveled more than three years ago, misinformation has been reported time and again. Here we’ll set the record straight on mortgages and real estate here in the San Fernando Valley.
- It is Almost Impossible to Obtain a home Loan
Frankly, it is not very difficult to obtain a loan if you do your homework. Is the process different than it was during the boom market early in the millennium? Yes. Is it more labor intensive? Absolutely. But obtaining a loan today is no more difficult per se, than it was prior to the emergence of exotic loan products that flooded the market 5 years ago. The regulations do continue to change, but essentially obtaining a home loan requires verifiable income, good credit, a reasonable down payment and proof of ability to repay the loan. Loans were made based on these criteria for years and years. In fact, when looking at the history of mortgages, the years when obtaining a loan were easy as pie, were the exception, not the rule.
- “Jumbo” Loans Are No Longer Available.
Large loans are making a comeback. Known as Jumbo Loans (those generally over 750K), these loans are now more readily available. Naturally, as the loan amounts are higher, the standards for qualifying will be commensurate with the risk the lender is making. Ample reserves are required, larger down payments are required, interest rates are a bit higher and good credit is needed. But these types of loans are absolutely available.
- Buying a Foreclosure Is A Great Deal.
If the word “sometimes” were included in this statement, it would ring true. Buying a foreclosure can be a great deal. Homes can be purchased at huge discounts. But buying a foreclosure can be a lousy deal too. Foreclosures that are listed by banks for example, are often priced so far below market value that the listing brings in a lot of offers. These offers then drive the price up, making the deal a little less sweet. Moreover, as a buyer you will almost never know the true condition of the home. Whether you buy a home at auction or through a bank listing, major damage or problems with the home may not be disclosed as the seller has not lived in the property and doesn’t know the condition of the property as a traditional seller would. The home could have a leaky roof, water damage or other similar problems that you may be completely unaware of, until the home is yours. Repairs can also be extremely costly, again souring the deal.
- Short Sales Take Too Long.
Again, as a blanket statement, this isn’t true. Yes, purchasing a short sale can take a long time, many months in fact. But, this is not always the case. New processes at many banks have streamlined the transactions, so that purchasing a short sale home won’t necessarily take several months. This is particularly true if you happen to be second in line for a property. It’s not uncommon for the buyer who put in the initial offer to become frustrated with the time it takes and withdraw their offer. If you are in the fortunate position of being next in line, much of the paperwork and approvals have gone through, and the home can be purchased expediently.
- The Market Will Soon Be Flooded With Shadow Inventory.
It’s no secret that banks now own a great number of foreclosed properties. However it’s a mistake to think that banks are going to dump them all on the market at one time. They are bit by bit listing the properties, as flooding the market will depress the values. Banks simply can’t take the hit of selling off all of the properties they own at discount prices, so if you’re waiting for this surge in inventory, you’re going to be waiting a long time. Suffice to say, short pays and foreclosures are going to be available for a long time, as there is a surplus in inventory, but they aren’t going to be up for sale all at once.
Fred Kreger, CMC
Certified Mortgage Consultant
American Family Funding
A Division of American Pacific Mortgage – A Direct Lender
President Elect & Vice President, Government Affairs
California Association of Mortgage Professionals (CAMP)
“Excellence and Integrity in Lending”
Phone: (661) 505-4311 Fax: (661) 705-8339
DRE License # 01371184 / 01215943 NMLS License# 214640 / 1850