Real Estate 2009

Here are some insider secrets to finding opportunity amid chaos.

By Tara-Nicholle Nelson

If this year’s media coverage of the real estate market were a fairy tale, it would be Chicken Little. Headline: “The Sky Is Falling.” The cumulative emotional impact of the subprime mortgage debacle, the foreclosure crisis, depreciating home values and mortgage lenders going out of business might tempt a savvy woman to sit on the sidelines for a decade or so before making any real estate moves.

Contrarian stock investors know that the best time to buy is when everyone else is running away from the markets. The same applies to real estate: There are great opportunities and accessible financing options available now that are just not dramatic enough for the headlines! Here are 6.5 essential need-to-knows for professional women looking to craft a personal silver lining out of today’s real estate crisis.

1. Getting a mortgage is not as hard as you might think. The question I’ve been asked the most this year has been whether or not mortgage lenders are back to requiring a 20 percent down payment. My answer? Absolutely not! The Federal Housing Administration (FHA) offers a very sensible, 30-year fixed mortgage with as little as 3.5 percent of the purchase price as down payment. Most conventional loans require 5 percent down.

If you have the following items, you are a great candidate for a mortgage:

• A decent FICO credit score (660 or above).
• 3 to 5 percent down payment.
• Income documentation for the last two years.
• A low or moderate amount of debt relative to your income.

2. But it is harder than it used to be, and it will get harder before it will get easier. The days when you could get a million-dollar mortgage with bad credit and no down payment are gone – and they aren’t coming back anytime soon. In 2008, more than 120 mortgage lenders, several national banks and the two major mortgage insurers went out of business, were purchased or were nationalized, largely as a result of the financial fallout from writing bad mortgages. As a result, the remaining lenders are likely to continue the trend of requiring better credit, more down payment money and lower amounts of nonmortgage debt from mortgage applicants going forward.

3. Aggressive options exist if you need to sell before you can buy. A buyer’s market is the ideal move-up market – so long as you can sell in order to save big on your purchase.

If your home is sitting on the market and you are serious about getting it sold, get aggressive:

• Make a significant price reduction.
• Hold an extreme open house event.
• Consider offering closing cost credits, partial seller financing or even a lease-option arrangement.

4. Women business owners must incorporate mortgage planning into their tax strategies – now. Entrepreneurs often aggressively adjust their gross incomes downward to account for their business expenses. In the past, the stated income loan made it easy for business owners to qualify for a mortgage based on gross income. Going forward, mortgage lenders will use the income on which you pay taxes for purposes of qualifying for a mortgage. If you have a mortgage that will adjust in the next few years, keep this in mind when you file this year’s tax returns!

5. The credit crunch is making it tough to buy investment properties now. When home values dropped, a disproportionate number of the folks who walked away and defaulted on their mortgages were investors who had little equity and didn’t live in the home. To prevent this from recurring, lenders are now requiring 40 percent down on investment properties – even from those with great credit!

6. It’s a great time to buy – with the right perspective. This may be the single best buyers’ market in recorded economic history. Prices have fallen, interest rates are great and inventory is high – giving you record-high bargaining power vis-à-vis sellers. Today’s smart homebuyer is not looking to flip a house next month, but rather is looking to hold her home for the long term – at least five to 10 years – to stay insulated from the current market’s volatility.

You can still take advantage of the buyer’s market – even if you are not quite ready to buy. If you don’t have 3 percent of an entry-level purchase price in the bank, look into your city or state’s first-time homebuyer programs. Lenders will let you use their funds to fill in the gap, and many authorities have recently increased their maximum income and purchase price limits to be more realistic than in years past. If you need more time to work on your credit or to save up, you can still secure your dream home – at a dream price! – now by entering a lease-option agreement with a very motivated seller or landlord. Just make sure your interests are represented by a savvy Realtor or real estate attorney.

Tara-Nicholle Nelson is a real estate broker, attorney and author. Ask Tara your most pressing real estate questions at www.REThinkRealEstate.com.