Is Home Financing an Impossible Dream?

Recent Gallup Polls on consumer confidence and opinion are not good. Only a rough 5% of American consumers think our economy is in decent shape, and only around 12% are of the opinion that things will improve any time soon. But can one really blame them? Foreclosure rates have been rising, while housing prices have been in steep decline. And on top of that a variety of well respected lending institutions have come dangerously close to folding. It's not hard to become a cynic in times like these.

In addition, tossing around phrases such as "credit freeze" certainly doesn't help things, especially when very little clarification of their meaning is given. What it actually does is lead consumers to believe that it isn't possible to get a loan on a new home or car, which is simply not true. Various measures have been taken by the U.S. Federal Government in order to insulate consumers from the current economic crisis and encourage continued activity in the consumer lending sector. And despite tightening criteria for loans, many borrowers are still being given financing.

Right now may actually be the best time to purchase a new home. According to the National Association of Realtors, the average sale price of existing homes has declined roughly 9.5%, which is the largest fall since they began recording in 1999. The S&P/Case-Shiller 10-city housing price index also saw the steepest drop in its history, plunging about 17.5%. What this means for those considering the purchase of a new home is that they can potentially do quite well, as housing prices haven't been this low in a long time.

Additionally, new FHA lending regulations recently put in place also favor consumers. The limits on FHA-insured loans have been increased from $362,790 to as high as $729,750, depending on the area. FHA loans are now running very reasonable rates and only require a 3.5% down payment, and are even allowing down payment assistance from family members.

One interesting thing to note for first-time home buyers is that if you make less than $75,000 a year, you will receive a tax credit for 10% of the sale price of the new house, capped at $7,500. This credit is available to buyers through July 1, 2009. Although it's being referred to as a credit, it's technically a loan. But it isn't often that you can find a 0% loan that's payable over 15 years, so it's a good thing as far as I'm concerned.

As I mentioned earlier, lending criteria has tightened a bit, and though minimum credit scores were in the low 500's until recently, they now usually range between the upper 500's to the low 600's. Also, 100% financing has become a rarity given the current economic crisis, so it's not unreasonable to expect that you will have to put some money down. More is required in the way of documentation and proof of income these days as well.

It's hard to say who will or who won't be approved for a home loan, so you'll probably be best served by meeting with a Certified Mortgage Planner. Not only can they help you figure out which lenders will or will not finance you, they can also come to your aid in figuring out which offer best suits your individual situation.