The Housing Boom and How it Affects You
There is no doubt that real estate took a hard fall over the past couple years. It used to be a great way to invest. You were expected to buy a house and in return for your investment, you would be rewarded with a higher value when you went to sell it after several years. This is no longer the case. The house you bought may not have increased in value and more often than not, it has decreased. Due to this, many young people are wary of buying new homes, and with good reason. They may be watching their parents and other family members struggling through the housing crisis. Will they ever buy a house? Should they follow the status-quo and make an investment that may or may not increase? The housing crisis left a bitter taste towards real estate in the mouths of many people in the nation.

As with any problem comes a solution. The lenders banded together and decided to make their requirements stricter so that a similar crisis could be averted. They made the down payment amounts higher and the qualifications for the purchase price higher. For example, you had to make a certain income to even qualify for a certain price range in today's market. In the past, buyers could get away with 2 mortgages, one for the down payment, usually at a higher interest rate, and one for the bulk of the property price. This not only allowed more first time homeowners to get into larger homes, it also helped create this crisis because home owners could not actually afford their new homes. The loans themselves also increased due to higher interest rates, balloons rates, and low introductory rates that were not fixed. The lenders decided that if they could restrict the unqualified buyers, the problems could be avoided.

What the lenders didn't realize was that more and more families were unable to help their young adult children with a down payment. Many families in the past would provide the down payment for the newly married child or recently graduated child, and due to their own housing problems, they no longer could. The lenders also didn't account for these young adults simply not having the money on their own to provide the down payments or the ability to make large monthly payments. By decreasing the standards, the current administration has made it possible for more first-time home buyers and those trying to rebuild their lives after a foreclosure to get into a home of their own.

The new regulations will still ensure that proper channels are used to vet the borrowers but the standards will be more objective. If there was a slump in the borrower's credit history, it may be able to be explained in order to obtain an FHA loan. In the past, anything below a credit score of 700 was dismissed because the lenders were too uncertain about their own risk.

This new idea of looking at the whole person rather than just them as a number should help increase the housing market's comeback. It can help not only with new purchases but also with refinancing for those who may be upside down in their house. Keep in mind, the borrower still needs to prove their case but the benefit to the economy as a whole will be much larger if houses are being bought rather than just rented.

Young people may not have established credit with high amounts of debt and a lender should not necessarily view that as a negative, as they have in the past. It could indicate a high level of ability to pay with cash or to pay things down quickly, which is a positive scenario with any line of credit. Many lenders are trained to look only at numbers rather than the individual and they may be overlooking several candidates that would be make excellent homeowners. The current administration is encouraging the lenders to be more objective by helping the loans to be ensured and lowering the financial risk that these lenders are taking with potential homeowners.

Without young adults buying houses and stimulating the economy, the market will not make a full recovery. If their families cannot recover and apply for refinancing modifications, the housing market will not be restored to a level of low risk and high demand.

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