The rules and costs, are changing for home buyers, especially if you are a first time home buyer just entering the market. Buyers are facing different challenges than their predecessors who purchased even just a year ago.
For home buyers, not all deals are created equally. In the past few years, FHA has been a favorite for financing for many first time home buyers and those looking to put less of a down-payment. To prevent a recurrence of the current market markets, a series of new policies and regulations have been implemented making a home purchase more costly with many looking at changing the role of Fannie and Freddie which could tighten available options for home buyers in the years to come.
Mortgage insurance has doubled, up to 1.15% for some. It may not seem like much, but on a 30 year mortgage for a $300,000 home purchase, this equates to approximately $30,000 more in costs than if they purchased several months earlier. Higher costs could affect the market and duration homeowners stay in their home.
Buyers will also face increased competition from investors, corporations, and international purchasers, many of whom are opting to pay cash. With first time home buyers now a smaller percentage of the buying demographic and their purchase contingent of financing, they are losing leverage to cash savvy purchasers.
The inventory of foreclosed properties on the market may also be smaller than what many have hoped for in years to come. The average annual credit card delinquency rate has fallen for the first time since 2005. The 2009-2010 average of residential loan delinquency was a significantly smaller increasing 1.83% versus the 4.71% from the 2008-09 years (averages compiled from quarterly data from Federal Reserve). It would seem that many who were going to become delinquent may already have.
All is not lost if buyers know where to look. Portfolio financing is picking up the slack and actually increase the options available to purchasers as homes do not have to be approved by FNMA or FMAC guidelines. This would include non-warrantable condos (when owner occupancy levels are not high enough).
Short sales are still available, considering that many sellers do not have the cash or the equity to price at current levels. Short sales for many sellers are becoming preferred by some as it minimizes damage to their credit versus a foreclosure. In some cases, an owner could potentially return to the market as a buyer in a few years after a short sale. A short sale could also potentially be in better condition and needing fewer repairs than their foreclosed counterparts which are vacant and susceptible to damage and break-ins.
Buyers writing tighter offers with fewer contingencies could compete even with cash buyers. They should, however, not waive their inspection or attorney review. Buyers could also receive gifts in certain instances to help offset the down payment requirements.
Buyer should think long-term and plan to stay for longer than predecessors upgrading every couple of years. This will also help curb flipping and overly accelerated growth of the previous market.
The new market will compel new strategies and more critical thinking about short and long-term goals. Hopefully, this will lead to stabilization and recovery and prevent another debacle in the years ahead.
Sherwin is a REALTOR® in the Chicago & Suburban area with @properties. Questions can be forwarded to Sherwin Sucaldito. Originally posted at Realty Evolved
Sherwin L. Sucaldito, REALTOR®, GREEN, ABR, CRPM
@properties
The Institute of Luxury Home Marketing
Green REsource Council, GREEN
Accredited Buyer’s Representative , ABR
Certified Residential Property Manager, CRPM
One thought on “Vantage Point – A New Direction for Home Buyers”
People should have bought during tax credit. Money back, panicked sellers, and lots to choose from. Those who waited too long may not get as much.