Oct. 3, 2008: Other types of credit may be feeling the crunch, but home mortgages are still readily available
Bad news about the economy is coming in from all directions, so you may be in the mood for some good news: There is plenty of money available for home loans.
By taking over FannieMae and FreddieMac, the federal government has essentially nationalized the secondary mortgage market. The lenders themselves are still private entities, but the government's loan guarantees are viewed as being so strong that, by now, virtually all residential real estate loans are coming through Fannie, Freddie, the FHA or the VA.
The other way of saying the same thing: There is virtually no secondary mortgage market left for non-conforming or sub-prime loans.
So while you may have trouble getting new car financing or a loan for your business, you should have no problem getting a home loan -- if you qualify and if the amount you're borrowing falls within the limits set by the four government agencies guaranteeing home loans.
And there's the rub: For most of the Phoenix area, qualifying for a conforming loan should be no problem. But higher-priced homes are sold with non-conforming "jumbo" loans, which are difficult to obtain right now and come at much higher interest rates.
Using an FHA loan, it is still possible to buy a home with "nothing down." FHA borrowers are obliged to pay a 3.5% down payment, but this can be offset by the $7,500 tax credit incorporated in the mortgage relief bill passed in July. FHA borrowers can ask the seller for up to 6% in closing costs, so they can take possession of the home for no money out of pocket.
But there's a catch: To obtain an FHA loan, the home will have to pass a rigorous FHA appraisal, which will eliminate many foreclosed homes unless the seller is willing to correct the most serious defects.
All that notwithstanding, while the financial sky might be roiling with dark clouds, real estate is still a silver lining. Because of the government's loan guarantees, lenders are willing to take risks on homes loans much more readily than on other types of credit.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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