FROM HOUSING BOOM to housing bust, the days of "cheap" mortgages and easy money are - at least, for now - decidedly over. Just thinking about how to buy or sell a home in this market seems like a Sisyphean task. And, if you're one of the tens of thousands of homeowners facing foreclosure, the prospect of hanging onto your home probably seems even bleaker.
While it won't be easy, there are ways to navigate this turbulent housing market. Here's a guide for buyers, sellers and homeowners in despair.
Buyers
Before you begin searching for a house, schedule some meetings. Talk with your accountant about how much real estate you can afford, ask your lawyer to tally up the total cost of buying a house in a particular neighborhood and speak with a reputable broker to confirm that your credit score is high enough to qualify for a mortgage.
"Over the past year, lending requirements have tightened and credit thresholds have increased across the board," says Bill Nazur, mortgage banker and co-author of "Finding Foreclosure: The Insider's Guide to Cashing in On This Hidden Market." A first-time home buyer who doesn't make a down payment is required to have a credit score of 740, says Nazur. A year ago, a similar buyer could score 100 points below that and still qualify. As for down payments, those 0 percent-down deals will be harder to snag. For first-time buyers, a down payment of at least 5 percent is common, according to Nazur. If they receive assistance from family members, the down payment can range from 10 percent to 20 percent.
If you have a high credit rating and cash on hand, then you're in really good shape, says Pat V. Combs, president of the National Association of Realtors. "There's little competition, a lot of inventory, and mortgage rates are still in the single digits."
Buyers with stellar credit scores should consider the traditional 15- and 30-year mortgages, advises Buz Livingston, a member of the Garrett Planning Network and a certified financial planner based in Santa Rosa Beach, Fla. The average interest rates on a 15-year and a 30-year fixed mortgage were 6.5 percent and 6.85 percent, respectively, in July, according to HSH Associates. In January, rates stood at 6.05 percent and 6.33 percent, respectively.
Those with low credit scores should postpone the house search and focus on improving their credit standing. "The biggest mistake a person with less-than-stellar credit could make is to apply for a subprime, interest-only or exotic loan," says Livingston. Instead, consider renting. "It'll help you create a good rental history, give you time to raise your credit score, and help you shop for an affordable mortgage in the future."
Regardless of your credit standing, be aware of overaggressive lenders. If they offer an adjustable-rate mortgage, find out how long the current rate will last and the maximum payment that you could ever owe, says Livingston.
And when you finally find your dream house, don't hesitate to haggle, says Pamela Liebman, CEO of the Corcoran Group. "A buyer shouldn't box him or herself into a corner when negotiating a price," she says.
Sellers
Noticing a lot of "for sale" signs up in your neighborhood? You're not alone. Several parts of the U.S. are being flooded with houses. That makes it a much more daunting prospect if you're considering joining the fray.
Pricing your home right is of utmost importance when trying to stand out from the competition. "One thing to forget is the amount your home was worth last year," says Livingston. "Some cities are thriving right now while others are caught in a downward spiral."
For example, average home sale prices hit $115,800 in Beaumont-Port Arthur, Texas, during the first quarter of 2007, a 16.5 percent increase from the first quarter of 2006, according to the NAR. Meanwhile, average house prices in Elmira, N.Y., dropped 14.9 percent year-over-year to $75,300. To find out the average asking price in your neighborhood, call your broker or consult web sites like NAR's, which provides quarterly reports on state and metropolitan area home prices.
Sellers may also have more wiggle room with their realtors when it comes to price. You could offer to lower your selling price if they agree to lower their commission. "Realtors aren't selling as many homes now, so they're probably more willing to negotiate," says Livingston.
If your mortgage is higher than the value of your house, consider holding onto your house and renting it to a potential buyer, suggests Dr. Gala Gorman, a certified financial planner and realtor based in Brentwood, Tenn. "Allocate a portion of the monthly rent toward a down payment on the house. This way, you're putting the renter in a scenario where he or she is motivated to buy the home," says Gorman.
To help sell your house faster, clean up the yard and freshen up the paint job. Also, consider throwing in some personal items to sweeten the deal, suggests Livingston. For example, if you're moving to a condo, you probably won't need your lawnmower. Some sellers even offer to pay for the buyer's closing costs, typically around $2,000, according to HSH Associates, or to complete an unfinished basement.
"Many parts of the country have a lot of inventory," says Corcoran's Liebman. "As long as you make your home pretty and price it right, you'll be at the top of the list."
Homeowners Facing Foreclosure
Foreclosures have reached epidemic proportions. During the first six months of this year, there were 925,986 foreclosure filings in the U.S., up 55 percent since the year-ago period, according to RealtyTrac, an online marketplace for foreclosed properties. To put it in perspective, that's one foreclosure filing for every 134 U.S. households.
By far, the most effective way for a homeowner to avoid being part of those stats is to communicate with their lender. Lenders will be a lot more willing to work with you if you call them before you miss a mortgage payment. "Lenders can offer more options in the beginning before late fees and attorney fees kick in," explains Glen Daniels, director of REO at Foreclosure.com.
Homeowners who undergo a life-changing or disruptive event, such as a serious illness or divorce, should also have some luck making arrangements with their lenders. After all, the lender's goal is to get paid. "The bottom line is the lender doesn't want the house back," says Daniels.
Lenders might consider converting a loan from an adjustable interest rate to a lower fixed rate, says Daniels, or they may enter into a forbearance agreement, which relieves the homeowner of his or her mortgages payments for up to 12 months. Typically, this offer is given to individuals who lose their jobs or are unable to work because of a work-related injury. The 12 months are then tacked on to the end of the mortgage period when the homeowner should ideally have a better handle on their finances.
If you simply can't afford the payments, your best bet is to put the house on the market, says Daniels. In turn, your lender will probably lower your payments for a 180-day period. However, if you're at an immediate risk of foreclosure, it may be best to conduct a short sale where the lender agrees to a lower payoff figure than the amount due on the house. For someone in financial trouble, this is a much better option than ruining your credit record with a foreclosure.
Finally, you may be feeling desperate, but make sure to steer clear of the random rescue companies that may contact you. "This is a scam," says Nazur. "These firms claim they can stop your foreclosure immediately if you sign documents appointing them to act on your behalf. In reality, you're probably giving up your ownership of your property."
While the thought of losing your home is a scary one, don't allow that fear to paralyze you into complacence. "Don't be afraid to make the phone call to your lender. This is the best course to holding on to your home," advises Nazur.
