Tuesday, August 21, 2007

Buying and Selling

With everything going on with the mortgage world people are wondering what is going to happen to our real estate market. Well, the truth is that lenders went hog wild giving everybody and their brother credit without requiring down payments and with crazy loan programs that set many people up for failure.

And that's what we got...failure of many, many people to repay their loans and to go into foreclosure. For those of you that don't know how the lenders do business; banks, credit unions, and mortgage companies loan money to consumers to buy homes. Then they package up millions of dollars of loans and sell them to FannieMae, FreddieMac, and other investors (this is the secondary market) to generate more money to make more loans. The loans they make must meet the guidelines of the secondary market or they can't be sold. The original lenders make money from the fees they charge to set up the loan and often times they charge a fee to keep collecting payments and servicing the loan for the new purchasers.

Well, with the shakeup of the subprime market(loans for people with less than 20% down and less than perfect credit) caused in part by so many foreclosures, investors are less willing to purchase those packaged loans from the lenders, so now they can't generate more money to make more loans.

Okay, back to "what does this mean to me". If you are buying it means:
1. You may be required to come up with a down payment.
2. You should get fully approved by your lender prior to entering into a purchase contract, to avoid spending money for inspections, appraisals etc, only to find out you can't get a loan.
3. You should look into VA or FHA loans that can allow minimal downpayments.

If you are selling it means:
1. Fewer buyers will qualify for loans to buy your home and it may be on the market longer for that reason. Longer market times mean more inventory for buyers to choose from.
2. Greater inventory means you may want to consider incentives to get buyers interested in your home.
3. You may want to be more aware of curb appeal issues that may cause buyers to pass on purchasing your home. Repairs should be done instead of offering credits to the buyer.

If you have money to invest or are in a position to use some of the equity you have in your current home to invest in other real estate, this is the perfect time to make that move. Of course everyone has different investment goals and risk tolerances that have to be considered, and before you jump in I recommend an investment consultation.

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