By Mike Heayn Real Estate 101
WHEN TURBULENCE HITS THE REAL estate market, as it has in Southern California, it is a good idea to get back to the basics. For the last several years many exotic loan products existed — such as interest only, negative amortization and minimum payment loans, amongst many others. However, since the subprime crash many lenders — particularly banks — have been getting back to basics.
Now, more than ever, having a good credit score with a strong credit history is important when purchasing a home. It used to be easy to simply apply for a loan and get approved, regardless of your credit score and any problems on your credit report. Over the last four months banks have tightened credit limits, not allowing a person with a bankruptcy or many derogatory items to attain a loan. Before starting the loan process, it is a good idea to check your own credit score so you know where you stand. The fastest way to increase your credit score is to pay off debt such as credit card debt. However, do not close the accounts, as they show a timeline of history.
You want to make sure you have a down payment. Gone are the days of 100 percent financing. If the property meets specific purchase price limits you may qualify for an FHA loan with a 3 percent down payment. However, be prepared to put down at least 10 percent plus closing costs. Lenders want to see homeowners with some skin in the game. Also, be prepared to put down more money as California has been designated by many banks as a declining market. Many appraisers are noting the declining box on appraisals, which makes many lenders require more of a down payment.
Know how much you can really afford. There is nothing wrong with stretching a little for a home, but do not put yourself at risk. If you cannot legitimately afford a home, do not buy it. Many banks will not let you to begin with, but do not count on appreciation to come to the rescue if you are in trouble. Be prepared to weather a storm and live in a property if the value drops. A home is more than a mortgage, property taxes and property insurance. Maintenance is required and you are responsible. Make sure you have cash reserves for unforeseen problems.
A good deal is still a good deal regardless of the marketplace. The tables have turned and it is now more of a buyers market than ever, but do not pass on a good deal or think that a seller needs to take your offer. Many people are still looking for homes and a good deal is just that, so do not grind sellers, because there is often more than one potential buyer.
A home is still a great investment in the long term and if you need a home there is no better time than the present. A home provides shelter and warmth and as I have said before, a place to call your own. However, in this market be prepared to hop through hoops with lenders.
MIKE HEAYN is a Washington Mutual Multi- Family Loan Consultant. He (310) 428-1342, or e-mailed at
Originally published in the Santa Monica Daily Press print edition on March 12, 2008. Read the original PDF.