During the past decade, we have seen sharp contrasts with regard to purchasing real estate. First we had the boom years in which you could purchase real estate and it seems that lenders put a rubber stamp on your application. The easy lending criteria led to a booming real estate market with skyrocketing home values. Then came the inevitable bursting of the bubble. The ensuing recession caused lenders to tighten their wallets so that it seemed as though home loans were reserved for those who walked on water.
We have been recovering from that recession for almost five years. Gradually over that time, standards for home loans have loosened up, but unfortunately the media has failed to take notice because it does not make for impactful headlines when there are not difficulties to report. Slowly but surely, lending standards have normalized so that one does not get a rubber stamp when they apply for a home loan, but they don’t have to walk on water either.
The point is that you can now get a loan to purchase a home in a very attractive market in which rates are still low and home prices, for the most part, are lower than they were during the height of the previous real estate boom. More reasonable underwriting standards for home loans are making the dream of home ownership a possibility for millions of more Americans. Many don’t realize these possibilities exist because of media headlines.
What guidelines have enhanced the possibility of owning a home? Here are a few examples…
Credit requirements are not as stringent. Some five years ago, in many cases potential homebuyers needed pristine credit to purchase a home. Today, the requirements for credit scores are lower. Plus the credit reporting process has become more open with consumers having access to reports and there are more tools which have been developed to help consumers get their credit in order. Government agencies have also issued rules to help those who lost their homes during the crisis to purchase again more quickly.
The down payment required is smaller. During the recession most loan programs aside from government alternatives required a 20% down payment. Now these government alternatives still exist — for example, veterans and active military can purchase a home with as little as no money down under the VA Mortgage Program — but even those who are buying more expensive homes have alternatives that lessen the need for a large down payment.
There are more alternatives to lessen the cash required. Potential home buyers are finding more alternatives to lessen the cash required to purchase a home. For example, the lender may charge a slightly higher rate and issue a lender credit for closing costs and this might even include the monthly payment for mortgage insurance when required. In addition, more and more home buyers are getting gifts from family members.
In 2013, 27 percent of those purchasing a home for the first time received a cash gift from relatives or friends to come up with a down payment, according to data from the National Association of Realtors. That’s up from 24 percent in 2012 and matches the highest share since the group began keeping records in 2009. “Rising stock and property values give their baby boomer parents the ability to assist those wanting to lock in near record-low borrowing costs,” reported Bloomberg Financial.
The bottom line? While rates are still near historic lows and home prices are still below their previous peaks, there is now a multitude of ways for renters and previous homeowners to realize their dreams of home ownership. If you can get past the negative headlines, you will find lenders, relatives and even sellers willing to help those who have aspirations of owning. The Federal Reserve Board has issued a study that shows the net worth of owners is over ten times that of renters. Owners also have access to tax deductions and a home can protect them from inflationary increases in housing costs such as we are seeing in the rental markets. But this “sale” on real estate is not likely to last forever.
