October 13th, 2008
How Will the Housing Crisis Affect You?
Housing prices are continuing their downward trek, and many consumers are facing negative equity and wondering just how bad things are going to affect them. Whether you’re trying to buy, sell or just maintain a home, the credit crunch may have some affect on you. Let’s take a look at what many people are currently facing.
Buyers
Right now, getting a loan is not going to be anywhere near as easy as it once was. Gone are the days of the 100 or 125% mortgage, and they’ve been replaced by offers of 60 to 70% mortgages. This means that home buyers are going to have to put aside a significant down payment before they will be able to get a loan. In part two of this equation, there is the issue of credit scores.
While a 640 score was enough to get a home loan a few months ago, right now, many banks are looking at 720 or higher as their new lowest threshold. This is bad news for the newly sub-prime candidates and getting an approval may be impossible in many cases.
In order to beat the crisis, home buyers will need to start saving money now for their down payments, and start working on getting their credit scores up to a higher level.
Sellers
Selling a home right now is not going to be easy, especially if you are stuck with a mortgage and need a set amount. Home values are falling across the country and appraisals can change within a few days. Trying to find buyers that can get an approval is also getting tougher and many just can’t meet a bank’s terms at this time.
For those in this position, now may be a good time to hold onto a house and start making improvements to it in order to increase the value. Things will turn around, but it is going to take some time.
Maintainers
For those that are just trying to keep the mortgage paid, the situation is a bit different. Rising interest rates are making payments on ARM mortgages higher, and the difference is ranging anywhere from $30 more a month all the way up past $500. For those that did not budget for rate increases, this has been a shock.
On the other end of the equation we have negative equity, which we mentioned earlier. Put simply, this means that many homeowners now owe more than their homes are worth. This is a situation no homeowner wants to be in, but until values bounce back up, it may be the new reality.
Putting it Together
At face value, the housing market looks bleak at the moment. However, there are signs that there may be a turn around on the horizon. Taking a wait and see approach is the best bet for many at this time, until these changes are felt on a widespread basis. It may take six months to two years before any certainty can be reached. In the meantime there are ways to learn about your local housing stats.
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