Well it means several things. First it means that buyers looking for a new build are most likely to get a better deal in 2007 than 2008 before inventories have decreased. Second, it means that buyers are able to dictate more of the terms of a transaction. This means you can not only get a better price on a home, but that you should also be able to negotiate other incentives such as having the seller pay a portion of your closing costs.

And more specifically for first time homebuyers, this information means that 2007 might be the year to buy a house. Because home values are slightly down but expected to rise, 2007 is a good year for many first time home buyers. Furthermore, interest rates are still at historical lows even though they have risen over the past year.

The 2008 forecast also has implications for people thinking of buying a vacation or investment property. Buying a second home is a big decision that should not be rushed. But you also want to make a prudent decision and get the best deal. So for those thinking of a second home, it might be time to sit down with your mortgage broker and map out a strategy and then start looking.

By 2008 prices should start going back up. The main reason for this is that many new home builders are reducing their inventories and will continue to do so throughout 2008.

This level ensures the bank’s investment. If you should default on your mortgage, then the bank would be able to foreclose on the property and sell it. With the proceeds from the sale, they could cover the unpaid mortgage balance and use the remaining proceeds from your equity to cover the costs of foreclosure and sale of the house.

This is why mortgage companies provide incentives for people who make larger down payments.  These incentives come in the form of lower interest rates or reduced closing costs.  A twenty percent down payment will also allow you to avoid paying mortgage insurance. Mortgage companies may also eliminate or reduce your loan’s pre-payment penalty. And these incentives increase as your down payment increases.  

But not everyone has a twenty percent down payment available in addition to closing costs. Luckily, the mortgage market now offers low and no down payment options for qualified borrowers. These options aren’t for everyone but may make sense for borrowers with good income, who are looking to take advantage of the benefits of home ownership.

What borrowers should know is that the more you put down the better the interest rate you will get. So a borrower who puts down ten percent will receive a better interest rate than a borrower who puts down zero percent.

Borrowers should also know that no down payment loans are not available in all areas. for example, in some markets where house values are unsteady or falling, mortgage companies will be less likely to offer loans with such a high level of risk attached to them.

 Before making any decisions about a down payment, you should consult with your loan officer to first determine what your closing costs will be. Then determine how much the lender will require in asset reserves. Finally, decide what you can afford.

First you will want identification. Because of the Patriot Act, lenders are required to obtain a copy of your driver’s license and social security card or permanent resident alien card. When you make copies of these, try to make enlarged, color copies. Enlarging the copies will ensure that people can still read the information on the cards after being faxed numerous times.

Next you will want to gather your employment and income information. Gather together all of your W2s for the most recent two years. You will also need to provide your last full month’s worth of paystubs. Some companies allow their employers to print these out online. If you use online print outs, make sure they show your name and social security number. It is also a good idea to get the phone number for your Human Resources department. This will allow your loan officer to obtain the necessary verification of employment.

After employment information you will need to document your assets. Your loan officer will need the most recent two months worth of bank statements–ALL PAGES. I can’t stress this enough. All pages are needed. For investment or retirement accounts you will need to provide all pages of your most recent quarterly statement. Some people black out the account numbers on these statements. But chances are the mortgage company will require those numbers not only for your application but so that they can independently verify that you own those accounts and the accounts contain what you say they contain. Fraud is too prevalent for mortgage companies to not verify.

Last you will want to provide your loan officer with the name and phone number of your insurance agent. This will allow the loan officer to quickly obtain proof of insurance as well as an invoice for insurance that will be paid at closing.

By providing your loan officer will all of this information upfront, you will save yourself quite a bit of last minute scrambling. This will also help to ensure that your loan closes as quickly as possible.

Steady employment means a mortgage company wants to see you employed in the same job or same line of work for two years or more. Obviously a mortgage applicant with a new job every two months is less attractive looking than another applicant who has been with the same company for 10 years.  And some jobs are less attractive looking than others. For example, loan officers and realtors can have a difficult time getting mortgages. Presumably this is because they have a deeper understanding of the loan process and therefore are more likely to manipulate it.  Thus mortgage companies require higher standards before lending to these types of applicants.  Members of the clergy can also have difficulty obtaining loans.  And obviously the unemployed have a particularly difficult time obtaining low cost loans. What’s more surprising though is that retired people can have trouble getting loans sometimes. Another group who has more difficulty is the self-employed applicant. The self-employed will usually need to document that they have been self-employed for a minimum of two years. Usually a business license or a letter from the applicant’s CPA will suffice as documentation. In the case that neither of these can be produced, a small number of lenders will allow more creative types of verification such as letters from the applicants customers or suppliers.

After they examine your employment, a mortgage company will examine your income.  They like to see consistent monthly income. Usually they will look at your paystubs and W2s.  Some mortgage companies will average your income from the past two years and then determine your average monthly income. Other companies will use their own formulas.  Overtime, bonuses, and commissions may not be counted fully in your monthly average. Mortgage companies try to determine what it is you are really bringing in every month.  They look at your gross monthly income not your net. Once the gross monthly income is calculated, they compare it to a few of your monthly payments: housing, installment loans, and credit card payments.  Basically they are looking at your proposed mortgage payment and any other monthly payments showing up on your credit report including alimony and child support.  Now they calculate your debt to income (DTI) ratio.  Most lenders are looking for a ratio below 40 percent.  Some require a lower DTI and some go as high as 55 percent.

Next, a mortgage company looks at your assets. Here they want to see that you have liquid assets you could immediately access should something happen. For example, if you lost your job, would you be able to make your mortgage payment until you found a new one? Most lenders want to see a specific minimun in your checking or savings account. Usually that number is 6 months of your full mortgage payment (the new payment the new loan will give you; not what you are currently paying).  That includes taxes and insurance for all six months.  Mortgage companies will typically only count about 70 percent of a retirement account. This is because of the additional taxes and penalties you will likely pay if you access the money early.  Mortgage companies refer to your assets as reserves. And they typically want to see that these reserves are “sourced and seasoned”.  This means that they want to see that you have had the money for at least two months. This way they know that you didn’t just borrow the money from a relative and will give the money back as soon as the loan closes.

There are few borrowers who apply for a mortgage and meet all of these qualifications perfectly.  So the important thing is to show the mortgage company the entire picture. Your loan officer can help you do this. So your best bet is to be entirely upfront with your loan officer and help him or her to package your application in the most attractive way possible.

INVEST: Purchase a vacation home or investment property. Now you have the advantage of two or more properties growing simultaneously in value, a time-proven method to increase your personal net worth.

ADD VALUE:A pool increases your home’s appraised value, as well as a new patio, new landscaping or an outdoor cooking area. Call us at the number below to examine various financing options, home equity lines of credit, and other second or first mortgages.

MAKE PURCHASES: Maybe you are satisfied with your financial position. Why not enjoy life? Maybe you want a new automobile, a pleasure boat or a motor home. Using your home’s equity can give you the cash to do what you want in life.