This is my column for this week from the Arizona Republic (permanent link):
Your real estate improvement goals for 2008 will be more financial than physical
Do you want to set some workable real estate goals for 2008? If so, sharpen your pencil.
Does the house need a new roof? Does the kitchen need an update? Should the pool be resurfaced? Doing regular maintenance is usually not profitable on resale, but deferring those repairs and upgrades can be very costly.
But the most important real estate work you will do this year will be financial, not physical.
If you’ve been prudent enough to buy a home — and 70% of Americans have — you’ve done well for yourself. You have a roof over your head and an asset to fall back on if times get tough. But refinancing your home or getting a home equity line of credit is not as easy as it used to be.
If you’re a first-time buyer, you have an even steeper hill to climb. Most homeowners have at least some equity to borrow against, but many first-timers have little more to bank on than a willing heart and an eager smile. Two years ago, that was enough. Lately, not so much.
The problem is that loan underwriting guidelines are a lot tougher than they have been in the past few years. Verifiable income matters. Debt-to-income ratios matter. For most home loans, a down payment is no longer optional.
What’s changed? For one thing, lenders have lost a ton of money on nothing-down and limited-documentation loans. For now, at least, they would rather write fewer but more promising mortgages. But the real estate market has changed, too. Lenders were free and easy until lately because they assumed the appreciation of the home would make up for lax underwriting procedures.
So what should you be doing to prepare for these changed circumstances? Boost your income if you can. Cut your debt ratios any way you can. If you will be buying a home for the first time, start saving for that down payment. If you plan to sell and move-up or downsize, maintain your equity in your current home — and watch your credit rating like a hawk.
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