Building a Home is Not an Impossible Dream – Especially with interest rates below 6%.

If consumers these days believed everything they read in the newspaper or saw on the evening news, they might think that obtaining a mortgage to buy a new home has become pretty much a lost cause.  Fortunately, however, the reality is quite different. Although mortgage lending standards have tightened for some borrowers, the majority of those in the market for a new home will find that conditions have remained much the same as they’ve ever been.  So what has generated media-related headlines such as “Subprime Mortgage Meltdown” and “Housing in the Tank?”

The answer traces back to early this year, particularly with reports that many subprime borrowers with adjustable-rate loans were experiencing difficulties making their monthly payments when the initial phase of those loans ended and the interest rate was adjusted upward. During the recent housing boom, a subprime borrower could buy a home with no downpayment, no documentation of their income and with a loan that, for a period of time, wasn’t even paying for the interest. Eventually, this lax lending was the source of trouble for too many buyers, who soon discovered that they had borrowed more than they could afford. Needless to say, when lenders saw a sharp rise in problem subprime loans, they cracked down quickly on the earlier practices that created the situation.

Today, the conventional, conforming mortgage market is functioning well, and ideally, this is where many prospective homebuyers want to be. The major difference today is that the lender will be scrutinizing the mortgage application to ensure that the borrower has the ability to repay the loan. That is only the prudent thing to do, and it is the traditional way of making mortgages.

Furthermore, mortgage interest rates are still highly affordable due to the variety of mortgage loans that currently exist and a conventional 30 year rate below 6%. While subprime loans may currently be harder to get due to stricter application guidelines, buyers who would have relied on subprime financing are now looking at FHA or VA loans backed by the government, a segment of the mortgage market that remains unscathed. 

One thing that hasn’t changed is that mortgages are still available to consumers with good credit. Low interest rates, more affordable product, and buyers’ incentives make this the best time to buy. Large numbers of consumers are finding the homes they are looking for and the mortgage financing they need to complete the purchase. In an economy that continues to grow, create jobs, and increase household income, buying a new home is not an impossible dream. Consumers who go out and look for themselves at what the market has to offer may be surprised by what they find.