For a Peters Township home buyers or sellers, every day we hear and read about mortgage companies closing their doors and certain mortgage products being eliminated. If you’re a home buyer, reading all these negative news reports is reason enough to make you concerned. Can a home buyer secure a mortgage is the question we are often asked. For Peters Township home sellers, the news has you wondering as well how it will impact the sale of your home?

What’s Going On In The Mortgage Industry - In Layman’s Terms

The issues that impact certain mortgage companies are mostly related to the relaxed credit rules of subprime lenders over the last six years. Those in the real estate industry have carelessly tossed around terms like subprime barrowers, however many consumers aren’t sure what a subprime borrower is or what the term subprime actually means. A subprime barrower is someone who “typically” has a mediocre to poor credit score and is often challenged with having little or no money for a down payment. Hence they must accept a higher interest rate due to the potential risk of walking away from the loan.

Where There Is a Need – The Vacuum Will Be Filled

Recognizing a need for a mortgage product to help these buyers afford a home, the mortgage industry several years ago began to relax their lending rules to accommodate these new found home buyers. In exchange for the risk the lenders faced with loaning money to buyers with less than stellar buying power, lenders charged higher interest rates for these loans. Many subprime borrowers selected the adjustable rate mortgage (ARM) product as a means to finance their new home as it offered the lowest possible monthly payment at the outset of the life of the loan. When combined with home values in some areas declining, and virtually no equity built in the home, many homeowners who desire to sell their homes are now upside down in the value of their home versus what is owed on the loan.

To Make Matters Worse

Plus, many borrowers who selected an ARM saw their monthly payments rise dramatically to levels they could no longer afford. The interest rates on these subprime loans are now adjusting to higher rates, making them unaffordable to many investors and homeowners, thus causing delinquent mortgage payments and home foreclosures. As a result, national home foreclosure rates are at an all-time high.

Ready For The Good News?

Here is the good news - borrowers with good credit can secure a new mortgage and mortgage products are available to them today just as they were a year ago. Fannie/Freddie/FHA/and VA mortgages are fully available; underwriting is unchanged, and loans are being funded for closings. In fact, in many areas of the country mortgage applications are increasing, according to a recent report from the Mortgage Bankers Association. Subprime loans are still available, however they are more difficult to find and their rates and terms have become much tighter.

Home buyers have more homes to choose from and mortgage financing with historic low rates is still available for buyers with good credit histories. Sellers are also becoming more realistic in the pricing of their property, and more open to negotiations.

Any questions or comments?