If real estate finance is the art of the possible, what's possible right now for homebuyers and sellers worried about rising mortgage rates, Wall Street bond market jitters and soft home prices?
Plenty. Although certain aspects of today's postboom marketplace might look scary on any given day, most of the traditional problem-solving tools of real estate finance are still at your disposal, whether you're a buyer or a seller.
Interest rates of 6 3/4 percent and higher needn't be deal breakers or impediments to selling or buying. Just talk to experienced, veteran mortgage or real estate professionals who worked through periods of double-digit and high single-digit interest rates and negative prices in the 1980s and early 1990s and you'll get some valuable perspective.
"It's really back to the future," said Paul E. Skeens, owner of Carteret Mortgage Corp.'s branch in Waldorf. "We're headed back to a more normal cycle [after the feeding frenzies of the boom years]. The crazy stuff may be gone, but the old solutions still work great."
For example, for homebuyers with limited cash on hand and borderline credit who formerly might have signed up for a zero-down subprime mortgage two years ago, Skeens recommends a program available nationwide through mortgage investor Freddie Mac. It's called "Home Possible," and comes in several variations including the zero-down-payment "Home Possible 100." The program allows seller contributions up to 3 percent of the total costs and does not require any set amount of financial reserves by borrowers. The maximum loan amount is $417,000, according to Freddie's Web site.
The "back-to-the-future" aspect is that, unlike the razzle-dazzle, stated-income underwriting at the height of the housing boom, Freddie Mac requires applicants to qualify through its traditional "Loan Prospector" automated underwriting system. This means that borrowers generally need FICO credit scores of 620 or higher and must be prepared to verify income and employment.
For applicants with nontraditional credit histories causing them to have artificially depressed credit scores, Freddie Mac will accept old-fashioned "manual" underwriting, as well as look at nontraditional credit records such as rent payment histories and utility payments - a key feature for young, first-time buyers with slim credit files, as well as minorities and immigrants with little banking experience.
