Generosity

You can tell that we are starting to get better when someone in the mortgage business actually does something reasonable….. and you look on it as being generous. Wow!

Actually, I have been waiting for a year for some good news and there are bits scattered here and their like blueberries in a muffin. Of course, the big news is always the foreclosures and how the overhanging inventory is disrupting the market. That is going to continue for a while, I am afraid.

While it doesn't affect every area of the country, it will continue to be depressing news for people in areas like California, Nevada, Michigan, and Florida where foreclosure sales account for around 50% of all sales. I suppose that is good news-bad news. It has a negative effect on someone who just wants to sell his home with that as his competition but it does get rid of one more property. That gets us one property closer to the end of this crisis.

It also means good news for those who have made what I consider an intelligent decision to buy another property for an investment. With a 25% down payment, many properties start out with a positive cash flow. I haven’t seen that in more than 20 years.  If you are in a financially secure position, this is one of those once-in-a-generation opportunities to buy income property.

The mortgage industry is sorting things out as well. For regular Fannie-Freddie loans you still need 5% down, 10% in some states that the PMI companies deem to be in declining markets. That includes the states listed above. FICO score requirements are loosening a bit but area also carrying some pricing hits below 720.  All the more reason to straighten out your credit! 

No income documentation loans are gone but credit is easily available for those who meet reasonable underwriting criteria. The automated underwriting engines will still approve people with high ratios as long as they have good credit. And, of course, rates are now firmly below 5%. I think that the combination of low rates and reasonable underwriting creates are very positive housing environment. In comparison with where we have been lately, it sounds generous to me.

That should incentivize any prospective homebuyer who is still on the sidelines sitting on his hands. Get out there and buy something! And if you are sitting on a loan that is at 6% or higher, get out there and refinance. It is also a great time to get a fixed rate loan to replace that ARM that is going to adjust in next year or so.  We are seeing the lowest rates in a generation and you should not let this opportunity pass you by.

Merry Christmas to all.

Randy Johnson Randy is a Credit.com contributor and seasoned mortgage expert. He writes about home buying, mortgage laws and real estate finance issues. He has financed over $1 billion in properties, is the author of How to Save Thousands of Dollars on your Home Mortgage and he is a feature columnist for Savvy Borrower.