Since the financial crisis of 2006–2007, the landscape has changed significantly for residential real estate and mortgage loan professionals. Although over half a decade has passed since the crash, many of us have been slow to accept how different the real estate–related businesses are from 2005. This article brings you up to date with good information and guidelines for selecting the right professionals for your needs. My number one take-away of this piece: Now is a great time to buy or refinance a home.
There have been sweeping changes in every mortgage loan–related area. Borrowers are required to provide more documentation than ever before. They must be able to qualify for the loan using their taxable income. The days of “easy documentation” loans with no income verification are long gone. Today’s borrower must qualify using tax returns and must be able to demonstrate the ability to make payments and repay the loan.
The Mortgage Loan originator (MLO) must be more proficient today than at any other time in history. In addition to being well versed in guidelines and products, the MLO must be able to qualify a borrower and manage the loan process from pre-qualification through the funding of the loan. It is more important than ever to choose an experienced MLO who works for a sizable mortgage bank like RPM.
“Today’s borrower must qualify using tax returns and must be able to demonstrate the ability to make payments and repay the loan.”
One of the key factors in choosing the right MLO is longevity – preferably five or more years of providing related services. The MLO should work for a company that has all of the products available in the marketplace. That would be a mid-size or larger mortgage banker. The MLO should have a high aptitude for the mortgage guidelines, rates, and required borrower documentation. Finally, the MLO must be able to efficiently manage the loan process from start to finish.
The residential real estate market has also been in flux. Real estate values have leveled off in most Southern California areas, but in some areas values are on the rise. The issue for the home buyer today is the lack of inventory. There are more buyers than there are sellers. The good news here is that values go up because demand is outpacing the supply. The bad news is that a lower than “normal” number of houses are being sold. For the local economy to be stimulated, the number of houses being sold must increase.
One reason for the lack of sales is move-up buyers’ inability to qualify for a more expensive home in today’s lending environment. This prevents them from being able to sell their homes to move-up buyers interested in that price category. We have heard for several years that lending guidelines must widen out to allow for self-employed and entrepreneurial buyers to be able to borrow.
“For the local economy to be stimulated, the number of houses being sold must increase.”
To me, this is the key piece of the recovery both in housing and the overall Southern California economy improving. Getting the borrower who has a strong credit score, and strong reserves (savings/stocks/bonds, etc.) but cannot show his tax returns because of extensive business deductions is currently locked out of the home-buying and/or refinancing process. The mortgage industry must find a way to allow these borrowers back in.
Now for the good news. Mortgage rates are VERY low and home prices are still very reasonable in most areas. Home affordability (combination of the cost of money and the cost of real estate) is very strong. If you are considering buying a home, now is the time. Buying investment/rental properties is also a good play today, because the California census is predicting a strong increase in California residents for several decades into the future.
Choosing a real estate professional is equally as important as choosing the right MLO. I would suggest a realtor with at least 5 years’ experience in the market you are looking in. He or she should be a full-time realtor with a wealth of knowledge about the area you desire and extensive experience working with buyers. I would depend on a personal referral and interview two to three realtors before making a decision.
What is going to happen in the future? I wish I knew. What seems likely is if the economy improves, rates will go up and so will real estate values. That is why now is the time to buy real estate or refinance the real estate you own.