October/November 2008 E-Note

Are you golden? Because of recent changes in mortgage underwriting procedures you may be a better buyer than you know. If you are that type of buyer then you are golden in this market. I don’t know if anyone else will tell you that so let me be the first.

There are many reasons people are choosing not to buy residential real estate now with market perception and job security the two most common. From past Newsletters and E-Notes you know I think now is a great time to buy if you have a good credit score and are comfortable you will have a job.

If you are “golden” what makes now a good time to buy is nothing more complicated than the concept of supply and demand. If you are golden you are in short supply which means you can make some demands. Let me explain.

Buyers with credit scores below 620 will find it very difficult to buy a home or condo. A credit score below 620 means it is unlikely that a buyer will qualify for a conventional (Freddie Mac or Fannie Mae) loan. FHA still does accept loans with lower credit scores.

Buyers with a credit score in the 620-659 range will pay more for Private Mortgage Insurance (PMI) which limits the amount of mortgage they qualify for. For example, a buyer applying for a $200,000 mortgage with 5% down and a credit score above 660 would pay $156 per month (up from $130) for PMI. That same buyer, with a credit score of 620-659 will pay $208, a 36% increase.

PMI may also be hard to find for a buyer who is purchasing a “non-warrantable” condominium and putting less than 20% down. Non-warrantable means the developer has not sold enough units (typically 70%) to turn the condo association over to the owners’ group. The issue of non warrantable affects new construction condos as well as apartment buildings converted to condos on market. Most non-warrantable properties would be limited to portfolio loans and 80-10-10’s with 10% down payments. Being golden puts you in a position to make demands that result in a good purchase.

Thanks for reading.
Michael D. Holloway