What Happens When Great Buyers Can’t Get Loans?
When buyers with FICOs of 800+ have a hard time getting a loan, what’s the world coming to? Are we going to be able to close transactions, or are things going to come to a grinding halt?
Here’s part of an email I received this morning from the National Association of Realtors:
Tell Congress that Market Conditions Demand FHA Reform
The increased loan limits for FHA that were included in the Economic Stimulus package are set to expire at the end of the year. NAR supports an FHA Reform Bill that includes realistic and permanent increases in the loan limits.
Early evidence shows that the increased FHA loan limits will provide a much needed infusion of stability, liquidity and security into the market. If Congress lets the new limits expire, the fragile housing market will once again be thrust into a period of turmoil.
We cannot wait any further for permanent FHA reform. Help us pass a FHA reform bill NOW to give American homebuyers and homeowners the peace of mind they so desperately need.
I recently spoke with a colleague of mine who reported what a nightmare it was for she and her husband to refinance their home. They both have sterling credit, make an easy 6-figure income, and were only looking to refinance a 6o% LTV (loan-to-value) loan on their primary residence. Slam dunk, right? Wrong.
They were moving along nicely as stated-income, when the lenders shifted gears and demanded full documentation. This wasn’t a problem for my friend. It was worth the hassle to lock up a 4.85% fixed, but for heaven’s sake . . . if she was wondering if her loan would close, where does that leave the average American?
Yes, the politicians are trying to permanently raise FHA loan limits and bail us all out (hmmm… hooray???), but in the meantime, while they’re duking it out, are buyers and sellers stuck? Only if they have no imagination, or are completely over-encumbered and upside-down.
Sellers can sell regardless of what the FHA will or won’t do. Sellers, if they have a little knowledge and flexibility, can close transactions regardless of market conditions. Seller financing, or seller carry back financing is as old as time. Don’t wait for your seller to qualify with an institution, YOU be the bank, and take matters into your own hands.
Some real estate professionals are afraid of this “creative financing” approach. Personally, the only creative financing I’m afraid of is the institutionally created Frankensteins of the financial world called derivatives, CDOs and other creatures from the Black Lagoon of financial “wizards.”
The point is, there are great buyers out there with cash and decent credit who can’t get a loan to buy your property. So, whatcha gonna do? Let your listing expire? Grumble that the market sucks and retreat into your cave?
When sellers have at least been open to the idea of carrying paper, and will let me advertise as much, I’ve seen the interest in their property easily double. When you offer terms, you expand your list of potential buyers exponentially.