Buyers Need New Mindset for 2009

Wondering what to do for 2009? A lot of potential homebuyers are doing that these days. Let's face it, 2008 was not a good year for the housing market. And with more layoffs, home values sliding and state budget cuts making headlines, it's unclear whether the market will improve in 2009. So I talked to Pat Thompson, a local expert and mortgage lender at Farmer's State Bank, to get his take on the next 12 months.


[Stephanie@northiowafsbo.com] Are you hopeful for the upcoming year or already looking forward to 2010?
[Pat Thompson@ Farmers State Bank] Little of both. I think that our market correction will continue during 2009 but hopefully find some conclusion during the calendar year. Changing the mindset of borrowers and educating them on the new rules will be a big part of 2009.


[Stephanie@northiowafsbo.com] Changing the mindset?
[Pat Thompson@ Farmers State Bank] 100% conventional financing has been eliminated. Stated income programs are also gone. Any refinance within the first 6 months of ownership is considered to be a cash-out refinance vs. a straight refinance which brings on new LTV (Loan-to-Value) limitations and pricing increases. Bankruptcy and Foreclosures in a buyer's past have now created a longer period of time necessary between the date of the action and how long before they are able to get a mortgage loan.

The largest majority (of new requirements) come from a buyer's FICO (credit) score. For every 20 points your score drops, it triggers an upward pricing adjustment. 720 to 740 range, depending on the lender, is the all-clear point meaning that if you are there or above you are not penalized. According to some national statistics, 50%-60% of Americans have a credit score that falls into the penalty range. Depending on the type of loan applied for and qualifications of the borrower, their rate could be 5.125% or it could be 6.75%


[Stephanie@northiowafsbo.com] What should a home buyer do to get their affairs in order?
[Pat Thompson@ Farmers State Bank] The largest thing anyone can do in today’s market is maintain and improve credit scores. There are minimums now that didn’t use to be there and they are taking some borrowers totally out of the market either through denial or pricing adjustments.


[Stephanie@northiowafsbo.com] What kind of activity are you seeing on the banking side? Are people applying for mortgages? If so, are they getting them? What percentage of mortgages are being denied (if any) and why?
[Pat Thompson@ Farmers State Bank] There is some activity in the purchase market and quite a bit in the refinance market. With regards to denials, I haven’t had a lot although when screening refinance requests, many people are not going through with any action once they hear quotes and understand today’s new pricing requirements from Fannie Mae and Freddie Mac. Upward rate adjustments based on LTV and credit scoring are making a lot of refinances not sound so appealing.

(Here is some background on LTV's from wikipedia.com) LTV is the Loan to Value ratio. For example, if a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000/$150,000 or 87%. Low LTV ratios (below 80%) carry with them lower rates for lower-risk borrowers.


[Stephanie@northiowafsbo.com] Let's say I want a 30-year fixed mortgage on a $200,000 house? What type of down payment is needed? If my credit is good, what type of interest rate can I get?
[Pat Thompson@ Farmers State Bank] Today’s market for conventional loans requires a minimum of 5% down on a purchase. Interest rates have varied from 4.75% to about 5.25% for a 30 year fixed rate.


In short, with interest rates so low, it is a great time to buy a home- if your affairs are in order. Here's another related article that can help you in your decision-making. http://www.msnbc.msn.com/id/28471137/


Thanks to Pat Thompson at Farmers State Bank which has offices in Grafton, Joice, Plymouth, Ventura, St. Ansgar, Northwood and Mason City. Check out their website @ http://www.fsbbanks.com/