New Rules for Buyers and Sellers in Real Estate
The housing bubble first showed signs of bursting in 2006 and the last few years have been an adventure for homeowners. With sellers stuck with no interested buyers, flippers stuck with multiple properties, landlords stuck without tenants, and millions of homeowners in severe danger of foreclosure, it will take years for the housing market to return to what we’ve been accustomed to over the past several decades. In the meantime, there are new rules that buyers and sellers need to be willing to play by in order to be successful in the housing market.
New Rules for Buyers:
- Credit Scores Matter: It takes more than a heartbeat and a signature to get approved for a mortgage now. For years, lenders paid little attention to the quality of the borrower since they were making a loan against an appreciating asset. Most borrowers would be fine, and those that weren’t would lose the home, which could be resold for a profit. Getting a loan today is a much more difficult process and the first number that matters is the credit score. A score below 700 will pull a borrower out of the running for many loans or at the very least cause an increase in the interest rate on the loan.
- Down Payments Matter: A lender is much more likely to consider making a loan to someone that can pony up some cash up front. A 20% down payment is still desirable, but you may find that your chances of approval on a loan increase dramatically with even a 10% down payment.
- Income Matters: Visiting with a mortgage broker today, you won’t hear anything about “stated income” loans that were so popular a few years ago. Remember when people used to buy a home based on a mortgage payment that they could afford? Your income is the primary determinant in what you can afford to pay every month. Be ready to show proof of income if you want to buy a house in this market.
New Rules for Sellers:
- Quality Buyers Matter: The days of multiple bids or bidding wars above a home’s listing price are behind us. Houses are sitting on the market for longer periods of time with fewer people walking through properties. As a seller, you’re competing with many other desperate sellers and even banks trying to get out from under houses. If you’re not willing to negotiate with potential buyers, your home could sit on the market for quite some time.
- Pricing Matters: During the first half of this decade, home prices were considered firm in most markets around the country. If you want to sell in this market, you need to price aggressively. If your home is the most expensive in the neighborhood, buyers will be drawn to cheaper options even if they have to sacrifice some quality.
- Expectations Matter: If you’re waiting to list your home for prices to rebound to 2006 levels, you could be waiting for years. Home prices aren’t going to recover overnight. What you owe the bank has nothing to do with what your home is worth, so a selling price needs to be based on true market value instead of the amount you need to break even. The market will rebound, but it will take time.
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Tags: Housing, mortgage, Real Estate
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