Thursday, July 26, 2007

Housing Trends: Maybe We Can Make Saving Money to Buy A Home Sexy

I saw it in the faces of some of my clients; it may have seemed exciting to be a part of the 'gold rush mentality' of no money down purchases: ' why wait and miss the boat, buy a house now.' Meaning, why wait until you have money saved for a down payment or even closing costs!

The truth is always much less sexy, taking the form of foreclosures and sherrif sales at the bleakest end of the spectrum; and too much financial stress even at it's best. You can read a few past posts on the foreclosure issues here and here and here. You can also follow Callahan's Cleveland Diary, since Bill is keeping track, seemingly weekly, of new foreclosures filed.

Out of these dark clouds may be some better news for the future. At least that is what is being reported in Crain's Cleveland this week. Shawn Turner wrote about banks/lenders seeing an increase in the number of fixed rate and conventional loans filed, with a downturn in ARMs and No Interest, and subprime loans. The banking officials interviewed said some key things, at least according to this article:

1) People are taking to heart the negative press about sub prime loans. The good news is that people are learning they "...need to read the fine print..." (quote from Cindy Balser of KeyCorp)

2) Fifth Third Bank says it's conventional loan applications are up to 74% of all loans written, compared to conventional loans encompassing 63% for all of 2006.

Another aspect of mortgage loans to consider: if you don't put 20% down, you will be spending money that does not count towards your Principal or Interest on the loan, but will still have to come out of your pocket. This is because of PMI (Mortgage Insurance) that is 'tacked on' to your monthly loan amount if you provide a down payment of less than 20%. I looked around and of all places found an article on MSN Money. But the source is fairly good: Kiplinger. A question and answer session from a consumer looking to buy a home and get a mortgage led to a pretty concise discussion of what PMI is all about.

I am not saying no one should get a sub prime loan. But it has to be better if more people are focused on actually saving money before they decide to purchase.

Some of my 2007 clients have talked about not being sure if they will be able to stay in Cleveland and put down roots....maybe they are recently out of grad school; maybe they have moved here to accept a job transfer. Could be a lot of reasons. I encourage them to talk to their mortgage lenders about the advantages of a 20 pecent down loan, helping to build equity more quickly. It's been gratifying that a few of my clients were already doing this on their own, planning for their home purchases, saving money. The Kiplinger discussion in Money puts it this way:

"In the early years, you aren't building any equity with the mortgage payment," Eisenberg says. "If the market changes or your personal circumstances change and you're forced to sell, you could lose money" if you made little or no down payment. The equity in your home can also give you an extra source of cash in an emergency."

Peace Out - 3C