Tight Standards Make Mortgages Tough to Get

By Julie Schmit, USA TODAY

Home buyers such as Bob and Janet Zych have fueled the U.S. housing market for decades.

They have excellent credit with scores that top 800, lifelong careers, and investment portfolios that have set them up for a comfortable retirement, they say.

But this year, “after faxing a ream of paper” about their finances, they got so fed up applying for a home loan that they simply wrote a check for their new $85,000 vacation condo in Phoenix.

Trying to get a loan “was just a nightmare,” says Bob Zych, 65, a manager for Mohawk Industries in Omaha.

Following the greatest housing crash since the Great Depression, home lending standards have tightened to their strictest levels in decades, economists say. And people such as the Zychs and others nationwide are paying the price.

Tight home-loan credit is affecting everything from home sales to household finances. Many borrowers are struggling to qualify for loans to buy homes. Others can’t take advantage of some of the lowest interest rates in 50 years because they don’t have enough equity in their homes to refinance. Those who can get loans need higher credit scores and bigger down payments than they would have in recent years. They face more demands to prove their incomes, verify assets, show steady employment, and explain things such as new credit cards and small bank account deposits.

Even then, they may not qualify for the lowest interest rates.

The NATIONAL ASSOCIATION OF REALTORS® says lending standards are too tight and are hurting the housing industry’s recovery.

The lending industry counters that standards are where they need to be, given still-falling home prices and the shaky economy.

“It used to be anybody with a pulse could get a home loan. Now you have to be an Olympic athlete,” says Guy Cecala, of Inside Mortgage Finance.

“The pendulum has swung too far.”

Read more: http://www.houselogic.com/news/articles/tight-standards-make-mortgages-tough-get/#ixzz1ZHMjxE2T

10 Worst First-Time Home Buyer Mistakes

Amy Fontinelle at Investopedia.com wrote a great article that highlights some of the biggest and "most costly mistakes that could put a hold on that sold sign." Here, I'll list the ten mistakes she gives and note my thoughts on them.

1. Not Knowing What You Can Afford
You should already know your budget well enough to know what you can afford, regardless of what a mortgage company tells you. While they are looking at your income and expenses, you know about your daily coffee runs (those can get expensive!) or your shoe habit. Not being firm about a price range is a recipe for house hunting heartbreak.


2. Skipping Mortgage Qualification
This is an important step that a lot of people miss! Although technically you can wait to get mortgage approval until after you place an offer, why would you? That is not the time you want any surprises. Find out up front how much your lender is willing to give you, and go from there. That way, you aren't wasting your time (not to mention your agent and the seller's time).


3. Failing to Consider Additional Expenses
There is more to owning a house than just paying the mortgage. You need to consider property taxes, maintenance expenses, possibly HOA (home owners association) fees, insurance... Don't jump at a house without taking these things into consideration.


4. Being Too Picky
I admit, as a first time home buyer myself, this is a difficult thing for me. I've seen so much that I like that it's hard to settle for less! However, you have to realize that most of the time you will have to compromise. Make a list of the things you absolutely must have (for me, I must have a 2/2) and the things you'd like to have but could live without (I love having natural light in the bathroom, but I don't necessarily need it). You may be surprised how many homes you find that fit your criteria once you identify the needs vs.  wants.


5. Lacking Vision
Some things are not worth losing a home over. Some people would walk away from what could be a perfect home because the yard is not in shape, or because they hate the wallpaper. Don't let little things deter you! Cosmetic issues can always be corrected, even if you can't do a complete renovation on move in day.


6. Being Swept Away
Again, I'm guilty. I am a huge fan of granite counter tops and stainless steel appliances. However, I have to stop and ask myself whether those upgrades are worth the additional money. For example, I looked at two condos in the same neighborhood with the same layout. One had the upgrades that I wanted and I immediately fell in love. You know what I wasn't in love with? The fact that it was almost $20,000 more than the other condo. This goes back to #5. All it would take to bring the plain-Jane condo up is a little vision and a little money--which could certainly be less than $20,000.


7. Compromising on the Important Things
You know those needs that you listed in #4? They are needs for a reason! If you know you want a certain location to be in a good school district for your kids or need a yard so that your dog can run around, then make those a priority and stick with it. You can compromise on little things, but don't make a decision you will regret later simply because it's cheaper or you feel like you must make a move right now.


8. Neglecting to Inspect
It always surprises me when buyers decline to get a home inspection. When it comes to houses, everything is not always as it seems. You need to be sure that there are no major issues with the wiring, plumbing, gas main, structure, etc. The fee you pay for an inspection could be hundreds (or thousands) less than what you would have to shell out for repairs and it gives you a chance to avoid potential disaster.


9. Not Choosing to Hire an Agent or Using the Seller's Agent
The seller's agent is under a fiduciary responsibility to the seller. That means that they are obligated to work in the seller's best interest. Although agents are responsible for treating both parties fairly (and working in both parties' best interest once they become a dual agent) a buyer's best bet is to have an agent that is working strictly for them. This makes negotiations easier (as the agent isn't conflicted) and allows a buyer to have an agent guiding them during their home search.


10. Not Thinking About the Future
I completely agree with the author's suggested questions to ask yourself about your potential new neighborhood:

• What kind of development plans are in the works for your neighborhood in the future?


• Is your street likely to become a major street or a popular rush-hour shortcut?


• Will a highway be built in your backyard in five years?


• What are the zoning laws in your area?


• If there is a lot of undeveloped land? What is likely to get built there?


• Have home values in the neighborhood been declining?

Buyers, are you turning SELLERS off?

Often when people think about the home buying/selling process, it is somehow thought that only the buyers need to be "sold" to make a deal happen. While it is definitely true that the buyers must be impressed with the property to get the ball rolling on the sale, it is important that buyers do not turn off sellers. Even in today's market, sellers don't have to--and often won't--put up with just anything. Here are five common things that buyers do that could potentially kill a transaction, courtesy of Trulia's Tara-Nicholle Nelson. (source)

1. Trash-talking. Trash-talkers are the home buyers who think they’re going to negotiate the list price down by slamming the house, telling the sellers how little it is really worth, how the house across the street sold for nothing, why the school on the corner should make them desperate to give the place away, etc. This strategy never works; in fact, when you attack a seller and their home, you only cause them to be defensive, and think up all the reasons that (a) their home is not what you say it is, and (b) they shouldn’t sell their home to you!

Sometimes this happens with buyers who actually love a house and just walk around it fantasizing about all the ways they would customize it to their tastes while a seller is there.  Sellers: avoid being at home while your home is being shown.  Buyers: save your commentary for your agent; if you do encounter the seller in person keep your conversation respectful and avoid critiquing the house or the list price.

2. Being unqualified for mortgage financing. When a seller signs a buyer’s offer, most often the seller agrees to effectively pull the home off the market, forgoing other buyers who might be interested.  As such, the only thing worse than getting no offers on your home is getting an offer, getting into contract, then having the whole thing fall apart when the buyer’s loan falls through – especially if that could have been predicted or avoided up front.

Sellers: Work with your agent to vet your home’s buyers’ qualifications, including their loan approval, down payment and earnest money deposit – before you sign a contract.  It’s not overkill for your agent to call the buyers’ mortgage pro before you sign the contract and get a level of comfort for how robust their qualifications are.  Buyers: Get pre-approved.  Seriously.  And make sure that you don’t buy a car, quit your job, deposit lottery winnings or do any other financial twitchery between the time you get loan approval and the time you close escrow on your home.

3. Making unjustified lowball offers. No one likes to feel like they are being taken advantage of.  And sellers generally know the ballpark amount that their home is worth, as well as what they need to sell it for to get their mortgage paid off.  Yes – the price you pay for a home should be driven by its fair market value, rather than the seller’s financial needs, and deals are more available in a market like the current one, in which supply so vastly outpaces demand. But just throwing uber-lowball offers out at sellers hoping one will hit the spot is not generally a successful strategy, especially if you really, really want a given property.

Sellers: Don’t get overly emotional about receiving a lowball offer; counter at the price you and your agent decide makes sense based on the total circumstances, including your motivation level, recent comps and the interest/activity level your listing is receiving. Buyers: Work through the similar, nearby homes that have recently sold (a/k/a comparables) before you make an offer to factor the home’s fair market value into your offer price – also factor in how much you want the place, too.  Don’t be amazed if you make an offer far below asking, and don’t get a response.

4. Renegotiating mid-stream. Sellers plan their finances, moves and  - to some extent – their lives around the purchase price a buyer agrees to pay for their home.  If you get into contract to buy a home, find out during inspections that costly repairs need to be made, then propose a lower sale price, repair credit or even actual repairs to the seller, that’s sensible and fair.  But if you were aware that the property needed a lot of work before you made an offer on it, then you come back asking for beaucoup bucks’ worth of credit or price reductions midstream, expect the seller to cry foul.  And holding the seller up two weeks into the transaction because you caught a case of buyer's remorse? Not cool, and not likely to foster the spirit of cooperation you may need to get your deal closed.

Sellers: avoid mid-stream price renegotiations by having a full set of inspection reports and repair bids at hand when you list your home. Buyers: try to avoid renegotiating the entire deal unless you get some major surprises at your inspections or inflating small repairs to try to justify a major price cut.

5. Misleading or setting the seller up. Remember when we talked about buyer turn-offs?  Being misled by listing photos or very fluffy property descriptions was high on the list.  The same goes for sellers.Offering way over asking with the plan to hammer the seller for a reduction when the house doesn’t appraise at the purchase price?  #LAME  Making an as-is offer planning the whole time to come back and ask for every penny ante repair called out by the inspectors?  Lame squared.

Sellers: If you get multiple offers and are tempted to take a sky-high one or one that claims to be all cash, consider requesting proof that the buyer has sufficient funds to make up the difference between what you think the home will appraise for and the actual sale price, and statements showing the cash truly exists.  Buyers: Don’t be lame. I’m not saying you have to tell the seller exactly what your top dollar is, but making offers with terms designed to intentionally mislead is really, really bad form – and can result in losing the home entirely if and when your bluff gets called.

Be a Better Buyer!

Just as there are good agents and not-so-great agents, there are good buyers and buyers that can use some improvement. Ideally, during the process of finding a home, the buyer and the buyer's agent work as a team to find the property that meets the client's needs. This may not always be an easy process, but there are ways that you can make it smoother for all involved.

1. Be honest about your finances.
You should already know your credit history and score before you begin looking for a home. If there are delinquent accounts, recent bankruptcies, etc. that could affect your credit-worthiness, it is absolutely futile to try to keep this away from your agent. It will come out when you try to get approval (or preferably pre-approval). While you don't have to go into the who, what, when & where of your financial situation, be honest and realistic with your expectations.

2. Know what you're looking for.
Shopping blind may be alright when buying shoes, but even that can lead to over-shopping... And you still may not get what you really need! Think about your needs: size, school district, general location, etc. Then think about your wants. Prioritize both lists so that you know exactly what you're looking for.

3. Don't major in the minors.
Paint can be changed. The layout of the house cannot. When you look at houses, it can be easy to get distracted. Whether you're looking at the current owners' furniture and pictures or disgusted by the horrible wallpaper, you must realize that those things are minor (and when it comes to the owners possessions, they are irrelevant unless they are including the furniture in the sale). Remember that list from #2? Keep that handy and refer to it when looking at houses.

4. Do your research.
You're not expected to know as much as your agent, of course. No one expects you to know the ins and outs of the home buying process. However, a good buyer is an informed buyer. Check out the articles on sites like Realtor.com, Trulia.com and various real estate company websites for great information. I also present my first-time buyers with a great book that explains the steps to the home buying process. Just remember: the resources are there, but they do no good if you don't take the time to actually read them!