Tuesday, December 14, 2010

Financing Real Estate

I am in the trenches every day and the question I hear a lot has to do with financing. I've been accused of being overly simplistic, and financing is certainly complex, but here is what I know about the situation now:

We have come through a period of time when lending was too generous. If you wanted to borrow 110% of the purchase price of your house, you could. (I still have clients who want to do this.) You got an appraisal and took every penny of equity out of your property. Then you bought a flat screen TV. That is called consumer spending. It is a bad thing.

Then the bottom fell out of real estate and whatever appreciation we had for the last five years was lost. In other words, you bought your house for $250,000 five years ago, it appreciated 5% a year, until this year when it was suddenly worth $250,000 again.

Fannie Mae, the U.S. Government entity, sets lending guidelines. Their new guidelines are very, very limited. So limited, that a lot of people (like me) can no longer qualify for a loan. These guidelines also apply to properties, so for instance, if your condo association doesn't meet their criteria, you can't get a loan to buy the condo.

The vast majority of banks use these Fannie Mae guidelines and if they are giving you a loan and then sell the loan, your loan has to conform. Where there is a little bit of light, is with local, private banks, that don't sell their loans.

The biggest hurdle to buying real estate is getting that loan. But if you have a good team, and know your options, you can take advantage of really low interest rates and tons of great homes to choose from with low, low prices.