If you haven't been on another planet for the last couple of weeks you're probably well aware of the problems many lenders are having. The media focuses a lot on what's happening to the companies involved, i.e. bankruptcy, layoffs, etc. but I'm not sure they're doing a good job, in most cases, of explaining the impact this is going to have on home owners, home buyers, and home sellers.

Let's start with home buyers because that's where the cycle starts. Mortgages are much, much harder to obtain for first time home buyers. 100% financing mortgages are almost impossible to get at the moment. There are exceptions for people with stellar credit. But for most would-be first time home buyers they're going to have to come up with substantial amounts of cash. That probably means at least 5% down, maybe 10%. The lender will probably still let the seller help out with closing costs. I've also heard that some of the lenders are now requiring larger reserves. For example, if you settled on your home a year ago, the mortgage company probably wanted you to have two months mortgage payments in the checking account as a cushion. Now that number may go as high as five or six months. And that's after you've come up with the down payment!

What this means to sellers is that there are a lot fewer people who CAN buy your home. That's true whether your home is perfect for the first time home buyer or whether it's more suited to a growing family. If the first time home buyers aren't there, the people selling their first homes can't move and so on and so forth. It ripples up the chain. (We're not even going to talk today about less people WANTING to buy your home!)

For home owners, even those not interested in selling right now, it means your home is worth less. It means if something happened tomorrow and you needed to sell suddenly, you will need to readjust your ideas of what it could sell for. If you have a home equity line of credit this would be an excellent time to think about paying it off! You want as much maneuvering room as possible if you should need to sell your home unexpectedly.

I also think we're about to see the revival of something that's been pretty dormant for many years now. I think you're going to start seeing a lot more seller financing. When mortgage money was being handed out on every street corner at ridiculously low rates, who needed seller financing?! But we're in a different world now. If you need to sell your home and there's any possibility of you carrying at least a second mortgage, it's time to think about it.

If you'd like to consider the possibility it makes sense to talk to a financial planner or someone equipped to help you with a complex financial transaction. While I can give you the outlines of how such programs work and can point you to the right experts to help, this is not an area where you should rely solely on my expertise.

That's how the current mortgage mess relates to you. I hope that's helpful. Any questions? Does anybody have a different take on this? How do you all feel about seller financing?

I look forward to your responses!