Now that were are on the bust side of the last real estate boom, the housing market is entering into a completely new environment. REO's (Bank Owned Properties) and distressed properties litter the market. Stricter loan underwriting rules apply. Cash is king and appreciation isn't guaranteed. But buying is still possible if you understand what's changed. To help you stay on the positive side of the equation, here's a look at just some of those changes.
• You need an equity stake. That means don't leverage yourself to the hilt. A larger down payment gives you immediate equity in your home and a better shot at landing a loan for less. During tough times, with an equity stake, you'll be less likely to walk away from your home than you would if you put little or zero down and have no stake in the home. Cash is especially crucial when buying investment properties because financing options are even more limited for investors than for owner-occupied home buyers.
• Credit has tightened. In the past if you had a pulse and a good credit score, you would be able to push your refinance papers through in less than a month. Today you'll need a credit score in the 700s to get a decent loan. You'll also have to prove your employment, income, assets, reveal your debts and expenses plus prove you can make the mortgage payment.
• Home ownership is a privilege. It's also a responsibility. A major lesson from the housing boom taught us not everyone can or should own a home. Today's housing market is littered with homes purchased by buyers who moved to quickly and later discovered they could not afford interest rate resets or the mortgage once the economy stumbled.
• Smaller is becoming in. The era of energy, money eating mega mansions is over. Smaller homes are less expensive to own, to operate, to maintain and easier to sell. Using less energy, they are also greener. Who needs all that space anyway?
• Fast appreciation is not a guarantee. With home prices off as much as 50 percent since the peak of the market, buying a home can be a good deal. However buy because you can afford the home and owning is a better deal for you than renting. Don't buy because you expect appreciation to double over night. Some experts say a full recovery could be 5 years away. Healthy home values appreciate over the long haul. not over night.