Teaser Rates

August 25, 2010 by srgproperty
Filed under: real estate

We hear about historically low interest rates on home loans practically every week. Rates on 30-year fixed mortgages are well below 5% and still falling! Interest rates like these would have home buyers lining up to buy any available real estate in any other market. So who is getting these super low interest home loans? Very, very few people.Why is that?

The fact that so many homeowners are upside down on their mortgage is the root of the biggest problem. Over the last few years property values have fallen significantly in every state. Many homeowners are finding that their homes are worth less now than when they bought them. Even many of those whose homes are now worth more than their original purchase price may still be under water if they refinanced their home and took cash out.

Banks will only make loans of some percentage – 80% up to 97.5% – of a home’s current value. It’s not possible for people to pay off their old loan with proceeds from a new loan with a lower balance. Whether you want to sell your house and buy another, or just refinance the one you have, this is a deal breaker. So even if they are well qualified borrowers, unless they can come up with the cash for the shortfall, they’re stuck.

In this economy the unemployment rate is high, but as concerning is the length of time it has been so high. Many homeowners have been out of work for an extended period of time. There are also a lot of people who are working jobs that are far below their qualifications – and pay less – or working part time jobs. In spite of this, a lot of them are making ends meet somehow. They’ve found creative solutions, including starting their own businesses, cutting back on spending and sending stay-at-home parents back into the work force. Viagra Jelly But they can’t show sufficient income to prove to a lender that they can make a lower mortgage payment than the one they’re making now. Even for those who have sufficient income, changes in employment can make it difficult to qualify. Two years of steady employment in the same field is considered standard by most lenders. Borrowers who switched to a different field because they couldn’t find work in their chosen field, or borrowers who took a contract position won’t qualify until they have a two year history to show.

The standards for qualifying for a loan have become more stringent. The huge number of defaults can be traced back to lending practices that were too lenient. So banks have tightened up their requirements. They want to see higher credit scores and lower debt ratios than they did years ago. If a homeowner has been keeping it together through falling home values, employment problems and other challenges, the chances that they have near-perfect credit and lots of money in the bank is slim.

First time buyers face all of these problems, except for being upside down on their mortgages. There are not many first time buyers out there with great credit, a hefty down payment and sufficient verifiable income. Many of those that can buy a home now are worried that home prices will decline further and/or that they’ll lose their jobs. This isn’t a comfortable time for a beginner to take the plunge.

So while we all drool at the latest reports of historically low interest rates, they remain just out of reach for most. An enticing treat that we can see and smell but not taste.

If you are one of those in a position to buy a buy a new home in San Diego, this is the time to do it. Once the market turns around, interest rates will rise quickly.

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