Current State of Loans

[Dane S]

Hey guys. Sorry, I'm a finance newbie. Can someone give me a really simple rundown of what all this hubub about credit and the dollar means to the average person trying to get a loan? Is now a good time to get a loan? Are loans considered hard or easy to get right now relatively speaking?

Muchas gracias.

[soko]

You're questions are very loaded and would take a lot to answer in depth, mainly because there are no clear answers, one can only speculate. Here is a quick explanation.

The rundown is that a few years ago interest rates were at historic lows making it possible for people with bad credit to get home loans, the demand for houses went up and a large group of individual investors bought property driving up the value of homes with the thinking that they can sell them for a profit later.

The double-whammy is now those people with bad credit can't pay back their loans and are getting foreclosed. This is bad for the banks because the banks never had the money to give these people to buy the house in the first place, the banks borrowed it from hedge funds and other big investment firms, so if people can't pay the bank, the bank can't pay the their investors and it creates a panic where a lot of banks are turning up short on cash.

Because so many people are losing their houses there is a huge inventory of empty homes for sale and not enough people to buy them. So investors who bought houses thinking they were going to go up, instead went down and now they are jumping ship as house values plummet.

So if you're A-paper (http://en.wikipedia.org/wiki/A-paper) the government sponsored companies will invest in your loan and you are in high demand. But if you are a sub-prime borrower then you're going to have trouble finding a bank who has investors for your loan and will most likely have a very higher than average interest rate.

Being a good time to get a loan now is up for speculation. The real estate industry will tell you that now is the best time to buy as housing values are down and you'll never see another chance like this to buy (they've been saying stuff like this since the day they were created). If you listen to most analysts they will say that things are going to get much worse and if you buy a house now the value is going to go down.

[spex x]

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If you listen to most analysts they will say that things are going to get much worse and if you buy a house now the value is going to go down.

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But market plays a huge part in all this too. There are many places where property values are still rising. Housing markets are very much localized.

Generally its a bad idea to try to time real estate markets. Right now, prices are down and you can make some very good deals. So now is the time to buy.

Prices in your market may fall further in the short term, but that doesn't really matter too much for an investment property anyway. If you can get a good deal on an income property now, there is no reason that I can see not to snap it up now rather than passing in the hopes of making a better deal tomorrow.

If you're buying for your own use, I'd still argue that that you should buy now when prices are low rather than waiting. I'm not a proponent of trying to time real estate markets.

[Dane S]

So if now is "the time to buy", does that also mean it's the time to get a loan?

[Quercus]

[ QUOTE ]
Hey guys. Sorry, I'm a finance newbie. Can someone give me a really simple rundown of what all this hubub about credit and the dollar means to the average person trying to get a loan? Is now a good time to get a loan? Are loans considered hard or easy to get right now relatively speaking?

Muchas gracias.

[/ QUOTE ]

The junk mail loan solicitations that we get at our small business are way down.

A couple of years ago, if I wanted a line of credit, I could call any number of banks and be pre-approved instantly for all I could want. American Express used to call me to let me know that it would be fine with them if we used our corporate Amex card five times as much as we were.

Now, we get almost no junk mail and even getting a line of credit increase at our main bank is a royal pain. And that's with good financials and very strong personal credit.

If we actually needed to borrow money beyond our current lines of credit, I'd be worried a bit.

[soko]

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So if now is "the time to buy", does that also mean it's the time to get a loan?

[/ QUOTE ]

Time to get a loan? Well uh, that depends on:
Your credit rating (Your interest rate)
Your liquid savings
Size of the loan and your down payment
Your long term goal with the property
Your anticipation of the market conditions
The local area you are buying in (ie. rent vs mortgage payment)

http://patrick.net/housing/prices.html

[pig4bill]

[ QUOTE ]
[ QUOTE ]
If you listen to most analysts they will say that things are going to get much worse and if you buy a house now the value is going to go down.

[/ QUOTE ]

But market plays a huge part in all this too. There are many places where property values are still rising. Housing markets are very much localized.

Generally its a bad idea to try to time real estate markets. Right now, prices are down and you can make some very good deals. So now is the time to buy.

Prices in your market may fall further in the short term, but that doesn't really matter too much for an investment property anyway. If you can get a good deal on an income property now, there is no reason that I can see not to snap it up now rather than passing in the hopes of making a better deal tomorrow.

If you're buying for your own use, I'd still argue that that you should buy now when prices are low rather than waiting. I'm not a proponent of trying to time real estate markets.

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I think from the latest numbers, the only area that's still going up is Seattle, possibly NYC. A few areas showed median price revisions going up, but if you dig into the numbers, they were skewed upward by a large number of cancellations in the low-end houses. Possibly because those buyers are usually marginal credit-wise anyway, and it's tougher for marginal people to get a loan.

Most areas are still headed down, and people like ceo's of a couple homebuilders are saying the bottom is a couple years out.

[bonds]

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The junk mail loan solicitations that we get at our small business are way down.


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This is true -- a year ago I was getting two dozen offers a week for mortgage products. Now it's almost zero and the few I do receive tend to be home equity offers from one of the banks I do business with.

I still get credit card offers by the bushel - when those dry up I'll know the credit crunch is very real.

OP: Like it was said above, if you're ready to buy (good credit, good cash flow, etc) this is a pretty good time. Interest rates are still relatively low, housing prices have stabilized in a lot of markets or even declined. Just don't plan on flipping your property in six months for a big score, those days are over most everywhere - for now.

[spex x]

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I think from the latest numbers, the only area that's still going up is Seattle, possibly NYC. A few areas showed median price revisions going up, but if you dig into the numbers, they were skewed upward by a large number of cancellations in the low-end houses. Possibly because those buyers are usually marginal credit-wise anyway, and it's tougher for marginal people to get a loan.

Most areas are still headed down, and people like ceo's of a couple homebuilders are saying the bottom is a couple years out.

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Sure, maybe so, I wouldn't know because I don't really pay much attention to RE markets except for the ones that I invest in. I just heard a story on NPR about how many minor-metro areas such as Des Moines, IA, and a few other midwestern cities are showing normal appreciation. So maybe I'm wrong.

Look, in REI, the best move is to invest in the best deal, NOT the best market. It makes NO SENSE at all in REI to pass up a good deal now in the vague hope of making a better deal tomorrow. Passing up good deals is foolish and completely wrong-headed. Also, I'd argue that 2-3 years in REI is the short-term anyway. So buying and taking a small short-term loss in equity while knowing that the market will shortly recover and probably show a better than average return later on is the RIGHT thing to do. But in any case, we really don't know what will happen to the housing market over next year or 2 years from now anyway. And that is why taking the good deal now is the correct thing to do.

[spex x]

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So if now is "the time to buy", does that also mean it's the time to get a loan?

[/ QUOTE ]

Yes, probably so. Whether or not the loan will be hard to get is difficult to answer. It depends a lot on who is asking for the money and what the money is for. Its harder to get non-owner-occupied loans without a substantial down payment (i.e., 25-30%) than it has been in the last several years.

But its still easy (in my experience) to get owner-occupied loans if you've got decent credit and a job, even if you don't have a downpayment. You'll pay high interest rates if you want a stated income loan, but you always pay a bit more for those anyway.