Interest Rates Are Unreal!
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Every week we hear about historically low rates on home loans. Rates on 30-year fixed mortgages are well below 5% and still falling! At any other time, interest rates like these would have jump started the real estate market from a standstill to a frenzy in no time. But now very few people are taking advantage of these low, low home loan rates. What's wrong?
The biggest problem is that a lot of homeowners are upside down on their mortgages. Property values have fallen significantly in the last few years. Homeowners who bought their houses when values were higher now owe more than their homes are worth. Even many of those whose homes are now worth more than their original purchase price may still be under water if they refinanced their home and took cash out.
The maximum loan amount is typicallly a percentage of a home's current value - current value being the key word. The thousands of people who owe more than their homes are worth can't pay off their old loan with the proceeds from a new loan. Whether you want to sell your house and buy another, or just refinance the one you have, this is a deal breaker. So even if they are well qualified borrowers, unless they can come up with the cash for the shortfall, they're stuck.
In this economy the unemployment rate is high, but as concerning is the length of time it has been so high. Many homeowners have been out of work for an extended period of time. There are also a lot of people who are working jobs that are far below their qualifications - and pay less - or working part time jobs. In spite of this, a lot of them are making ends meet somehow. They've cut back on spending, stay-at-home moms have gone back to work, and they've started their own businesses. But they can't show sufficient income to prove to a lender that they can make a lower mortgage payment than the one they're making now. Changes in employment make it difficult to qualify for a loan even if the income is sufficient. Most lenders want to see two years of employment in the same field to consider a buyer stable. Borrowers who switched to a different field because they couldn't find work in their chosen field, or borrowers who took a contract position won't qualify until they have a two year history to show.
The standards for qualifying for a loan have become more stringent. The huge number of defaults can be traced back to lending practices that were too lenient. As a result, lending requirements have become much tougher. Requirements for debt ratios and credit scores are much stricter than they were even years ago. If a homeowner has been keeping it together through falling home values, employment problems and other challenges, the chances that they have near-perfect credit and lots of money in the bank is slim.
First time buyers face all of these problems, except for being upside down on their mortgages. Unfortunately potential first time buyers with sufficient verifiable income, a hefty downpayment and great credit are in short supply. Fear of losing their jobs or of home prices falling further has detered many of those who actually are in a good position to buy a home. This isn't a comfortable time for a beginner to take the plunge.
So those tantalizing interest rates that we keep hearing about in the news remain just out of reach. Something that's technically true, but simultaneously too good to be true.
Article Source: Articlelogy.com
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