Be Prepared When Seeking A Home Loan

According to Tulsa World's Business Viewpont feature writer Steven R. Plaisance, summer is often the peak home-buying season in most markets. With the current conditions of these markets, however, Plaisance believes that it is extremely important for potential buyers to plan carefully before they move because of the sweeping changes the market has recently undergone. 

Mortgage marketing has helped millions of homeowners buy a home, refinance their current home, and also use the equity in their home for financial management purposes. Though it has done a lot of good for a lot of people, the mortgage industry's problems began in 2001 when the record-low interest rate cycle set off a six-year one of never before seen mortgage loan production. Lending standards and guidelines continued to become more and more flexible, and investors around the world were eager to buy U.S. mortgage loans through bonds and other various structured investments. 

Why were they such strong buyers? New investors, lenders, and products came into the market to help provide mortgage financing opportunities to the widest range of borrowers ever seen: those with perfect credit, not so good credit, 100 percent loans, full-documentation loans, and no-documentation loans. A seemingly strange loan products that existed was known as the "NINJA," no income, no job, no assets. When these factors are closely examined, it's not surprising that we are currently experiencing a shaky market. 

In the past several months, however, a majority of the private investors who were providing many of the risky loans have either disappeared or stopped buying these loans. The primary conventional housing finance agencies, Fannie Mae and Freddie Mac, are still helping hold up the mortgage finance market but are taking more cautious approaches as well. The government's housing authority, FHA, still functions and has seen its market share growing dramatically due to cuts in the private and conventional markets.

Home buyers, real estate agents, builders, and everyone else who is closely associated with mortgage finance should be aware that the recent changes are some of the most significant changes the market has ever seen. For years, the guidelines changed to encourage home ownership. New changes, however, are forcing the market to take a more cautious approach and a rigorous analysis of a borrower's ability to repay is now seen as completely normal. Borrowers today are introduced to "risk-based" pricing, which means they may be charged different rates and/or fees on their loan based on their credit score. 

Prospective home buyers or owners looking to refinance their loans should know that the lending guidelines and requirements today may be very different than they were the last time these buyers bought or refinanced. Customers with good, solid credit should have little to worry about, but the fringe borrowers may find they have limited options.

Despite all the gloomy mortgage forecasts, there is some good news. Mortgage interest rates still remain favorable, so there is no better time to buy or refinance, even with these changes in the market. In choosing the right lender, educate yourself about these changes. Ask your lenders the right questions to ensure they're up to speed with the changing market. It's better to be inquisitive right off the bat than to have your lender change their mind mid-transaction.  Be sure you find a lender that you can trust and who will be there every step of the way, since buying a home is often the largest purchase most people will ever make.