Every year since I started writing this column in 1993, I’ve offered New Year’s Resolutions for home buyer and home sellers, plus New Year’s Financial Resolutions that everyone can use to start their year off right.
I start by recapping what’s happened in the world of real estate and then move on to some specific resolutions I think will help buyers and sellers move the ball forward.
This year is, I’m sorry to say, has been lousy for the real estate industry in general:
- Roughly 28 percent of homeowners are underwater or are nearly-underwater with their mortgages, according to third quarter of 2010 data from CoreLogic.
- New home sales are at record-low levels.
- Home prices haven’t moved much at all, and in some states are still declining.
- The overall number of households has shrunk by millions.
- Millions of homes have received foreclosure notices this year and it’s likely that two million homes will be foreclosed on by the end of 2010.
- Despite the lowest interest rates in history, millions of homeowners remain in financial jeopardy, unable to afford their payments, and unable to refinance because of declining or negative equity in their homes.
- The government’s Making Home Affordable programs have been a disaster, with just 10 percent of applicants being granted a permanent loan modification. In some cases, the loan modifications have increased payments for homeowners, further jeopardizing their homeownership.
- The shadow inventory of homes is growing, and may reach another 4 to 12 million foreclosures, depending on how quickly unemployment comes down.
- Federal Reserve Chairman Ben Bernanke went on “60 Minutes” and announced that America’s unemployment levels, which are officially at 9.8 percent (but are really more like 18 percent, if you include all those who are underemployed and have just given up on finding a job), might take five years or more to normalize.
- There’s still no consensus on what to do about Fannie Mae and Freddie Mac. The companies continue under Federal conservatorship (which is similar to bankruptcy). A new plan is due in January, but I’m doubtful anyone will have figured it out by then.
This isn’t a particularly happy state of real estate affairs. And yet, hope blooms eternal. So here are a few New Year’s Resolutions you should make if you hope to buy a home in 2011:
1. Pull a copy of your credit history and credit score. Mortgage lenders have become extremely conservative and restrictive in deciding which mortgages will get funded. Lenders will pull credit scores from each of the three credit reporting bureaus, Equifax, Experian, and Trans-Union, and then use the middle score to determine your loans interest rate and terms. You need to know that information ahead of time. Go to AnnualCreditReport.com and receive a free copy of your credit history and then pay for your credit score (about $9). You can also go to each credit reporting bureau and purchase a copy of your credit history and score, if you’ve already used up your freebies. Even if you don’t plan on buying a home or refinancing a home loan, you might want to keep tabs on any issues that may be affecting your credit history.
2. Practice good credit behavior. Lenders regard those borrowers with a credit score above 780 as their best borrowers. Unless your credit score is above that level, you should work on eliminating any errors, and practicing good credit behavior so that your credit score rises. The best thing you can do? Pay your bills on time and in full each month. The next best-thing you can do is maintain four open and active lines of credit. Each credit reporting bureau offers good credit behavior tips for free on their website or, you can go to MyFico.com, which is the consumer-facing credit site owned by Fair Isaac, the Minneapolis-based company that invented the FICO score. (Full disclosure: I contribute real estate posts to the Equifax Personal Finance Blog, where Equifax’s credit experts blog about credit trends and information.)
3. Shop around for the best loan. Even though the Federal government is backing more than 90 percent of all the loans through Fannie Mae, Freddie Mac, FHA, VA, and USDA, it pays to shop around. Make sure you talk to at least four or five lenders before you sign your application, including a “big box” lender, a small local lender, a credit union, a mortgage broker and an online lender. Use the information you glean from each lender to negotiate one against the other and get a great deal for yourself. Yes, you’re allowed to negotiate with lenders and ask them to give you a better deal.
4. Create a great home buying team. Whether you’re buying investment property or a home to live in, you’ll want to create a team of real estate professionals who can help you find the right property, at the right price, on the terms, without any headaches. Home buyers will want their team to include a great real estate agent, mortgage lender, real estate attorney, tax preparer (with experience in investment real estate if you plan on buying real estate as an investment), and real estate inspector to start. Residential real estate investors will want to add a 1031 exchange professional and commercial (if appropriate) inspector to the mix.
Having the right team in place will go a long way toward making your dream of homeownership come true.
Next week: New Year’s Resolutions for home sellers