Wow!  This has been a whirlwind summer so far!  Business is picking up and the tourist season here on Hilton Head Island is in full swing. This is really great and just what we in the real estate community have been waiting for.  Why then, am I hearing loud noises of frustration from both Realtors and their clients? 

Most of the frustration seems to be coming from dealing with, you guessed it, BANKS!  Interest rates are still historically low, prices are as low as they have been in quite some time, sellers are as flexible as they can be and buyers are checking out all their options.  So what is the problem?  Lenders seem to be at the center of the issue once again.

The old saying goes, "The pendulum will swing".  This means that when anything goes as far as it can in one direction, it must swing back just as far in the other.  This seems to be what is happening with our lending institutions.  The extremely loose lending standards of the past several years are giving way to the return to the stricter standards of the past.

A few years ago,  almost anyone could (and did!) qualify for a mortgage.  Low credit score-no problem!  Can't verify your income-no problem!  Income/debt ratio out of line-we can fix that!  This was ridiculus, bad business and impossible to sustain.  Who could NOT have seen the current credit crisis coming?

However, now the pendulum is swinging back to the other extreme.  Realtors are getting updates almost daily concerning changes in lending.  One of the biggest changes has to do with PMI, or rather the lack of it.  Many have forgotton that a very high percentage of homes that have gone to foreclosure or are in the process, were homes that were purchased with 100% or close too it financing.  These loans, of course, required PMI.  Because of the sheer numbers of loan defaults, many of these companies have "gone out of business" themselves.  This leaves lenders and PMI companies with little recourse other than to be very careful of the loans that will require the use of this limited resource.

They are doing this by changing the rules.  First, to qualify for PMI, the loan must be on a primary residence with all persons signing  the note living in the property.  This means no co-signers for first time home buyers, or any other buyers for that matter.  Not for a FNMA loan. This also means if you were considering the purchase of a property as an investment or had your eye on a second or vacation home, your financial requirements just changed dramatically!  Maybe you had budgeted 10% or 15% down.  This will now be a minimum of 20-25% down.  In my area, where a small condo near the beach can easily be $300K, you have just added another $15K-$45K  to you outlay.  For many people trying to keep a financial cushion, this means the difference between buying now while the prices and interest rates are favorable or putting this purchase off until....

Other changes are making loan qualification more difficult for those not able to put at least 20% down.  Higher credit ratings, better income/debt ratios, and overall histories regarding employment and repayment are some of the areas that have tightened up. 

Now, this is not entirely bad!  Everyone should know that getting a mortgage is not a right.  It is a priveledge that is earned.  Ability to repay what you have promised to repay should certainly be demonstrated.  Having a stake in the well being of the property by having your own money invested in it should also be expected.

The most important thing you must know, however, if you are considering any kind of real estate purchase now or ever, is to find people to work with that are knowledgeable, that you can trust, and that will have your best interest as their primary concern.  Get referrals!  Pay attention!  Start with a real estate professional. Preferrably, someone who can provide you with referrals from happy clients!  Take their recommendations on lenders, tradesmen, attornies, etc. very seriously.  Most Realtors are very careful about who they recommend as these referrals reflect directly on them.  I only refer people with whom I have had personal experience and great personal experience at that!  More on that later, also!   

Keeping up with the ever-changing lending world gets more difficult each day.  My next blog will go over the recent changes that affect condominiums purchases and what we can expect to see in the future.

For more information or to discuss the real estate market in Hilton Head Island, please email or call anytime!  You may also go to www.KatGardner.com to see information on Hilton Head Island and the surrounding areas.  All information is accessable without sign in.