Bruce & Pam Wachter - 
  Your White Mountains Realtors - Buy, sell White Mountains Arizona Real Estate - 
  Show Low, Pinetop-Lakeside Cabins, Homes, Land

Bruce & Pam Wachter, REALTORS
  800-780-8035     928-205-9115

Whether you're buying or selling White Mountains Arizona Property, Bruce & Pam Wachter have the experience knowledge, and friendly attitude to make the process pleasant for you!  Call us for all your White Mountains Arizona Real Estate needs!

More than ever, today’s home buyer needs to have steely nerves.

Plummeting home prices, tough credit standards, gun-shy lenders and spooked appraisers can make even the most routine transactions slippery and treacherous. It's not that real estate deals aren't getting done -- they are, don’t think they’re not -- but buyers are faced with conditions that have changed drastically in less than a year’s time.

If you're going to wade into this turbulent real estate market, you should know what you're up against and how you can increase the odds of getting the home you want.

The housing market today is afflicted by two interrelated and correlated factors:

  • A credit crunch resulting from the bust of the subprime lending boom.

  • Tumbling home prices.

Not every area has seen prices decline, of course. Some markets have remained resilient, and even in hard-hit cities, home values are still rising in some neighborhoods.

Average numbers don't quite tell the whole story, thought.

Home sales have slowed overall, but sales of more-expensive homes in non-vacation home markets are down dramatically, Those in traditional markets such as California, worth $500,000, for example, are at about half the level they were in August, reportedly. Without those higher-end sales to buoy the numbers, the median prices in many areas have fallen more dramatically than they would have otherwise. It's a kind of statistical anomaly in the traditional markets.

However, the sales of higher-priced vacation homes vs. traditional full-time residential here in the White Mountains have shown tremendous resiliency, and are actually leading the market. While sold vs. asking price indicates that there are some steep discounts to be had depending on the sellers’ situation, vacation home sales are still showing resiliency. But are sales as good as previous? Not really. While there are many “deals” to be had, financing is a big hurdle at this time.

The jumbo question

Of course, the reason high-end home sales have slowed so much is important to potential buyers and sellers of these homes.

Mortgages fall into two broad categories, conforming and jumbo:

  • Conforming loans are mortgage instruments of a certain size (at this time $417,000 or less), most of which are purchased and resold to investors by Fannie Mae and Freddie Mac, the two big home loan agencies that also offer a guarantee if borrowers default.

  • Jumbo loans are those exceeding that conforming loan cap. They are not purchased by Fannie and Freddie, but until the very recent past were bundled and sold to other investors.

Why you need a down payment

For months the jumbo-loan market has been all but frozen. Investors, once eager for these loans have been scared off by the rising delinquency rates of subprime loans (those made to folks with troubled credit). Consequently, investors worry that borrowers of bigger loans soon will default in droves.

So, fewer lenders are making these types of loans. Most of these types of loans are now made by Bank of America, Chase, Wachovia and Wells Fargo. And, these lenders are charging higher interest rates for them. Thus, instead of jumbo loans being one-eighth to one-quarter of a percentage point more expensive than conforming loans, lately they've been coming in at 1 to 1.5 percentage points higher. On a one million-dollar loan, that spread can ratchet the payment upwards by $800 a month or more.

How the slump limits home buyers' options and what that means Rather than pay those high rates or meet the stiff criteria for getting the loans, because lenders now often require a fat down payment and high credit scores, many potential buyers are simply sitting on the sidelines, waiting for the jumbo-loan market to loosen up.

The situation is likely to improve if Congress temporarily raises the caps on conforming loans. The proposal that's part of the economic stimulus package would allow Fannie and Freddie to buy loans worth up to 125% of an area's median home price, subject to a $729,750 cap. That could lower rates on affected loans by a percentage point and stimulate sales.

But buyers still are likely to face other hurdles. Let's look at those.

Factors you control

Lenders assess you in three primary ways:

  • Your credit scores.

  • Your down payment.

  • Your income and your ability to document it with tax returns and other proof.
  • At the height of the lending boom, you could be zero for three -- bad credit scores, little or no down payment and unable to prove your income -- and still get a loan. Some of these loans were referred to as “Ninja” loans—No Income, No Job, NoAssets. Today, buyers need to be good for two for three. Good scores, a down payment of 10% or more and a steady, provable income to maneuver you into the best position to get a loan.

    The requirements for credit scores have changed the most significantly.

    FICO credit scores range from 300 to 850. Mortgage lenders typically pull borrowers' scores from each of the three major credit bureaus—a trimerged score -- Equifax, Experian and TransUnion -- and base their rates and terms on the middle of the three scores.

    In the past, FICO credit scores of 620 and below were considered subprime, which meant getting a loan would be more difficult and expensive. At the height of the boom, some lenders lowered that bar to 580.

    Today, 660 is often considered subprime, and any score below 680 is likely to result in higher rates and tougher terms.