Summary:
How can home buyers navigate through the dangerous waters of mortgage lending in today´s environment? This 512 word article presents the issues involved in making your decision.

Details or Sample:
The past six months have been heart-stoppingly volatile for home buyers. The “easy” money available in the lending markets in prior years has dried up and lending criteria have tightened significantly. Home buyers and speculators who took advantage of adjustable-rate mortgages found that when the rates reset, the monthly mortgage payments were unaffordable. Smaller and riskier mortgage lenders have teetered on the brink of insolvency and, as a result, banks and other mortgage lenders have made borrowing to buy a home a more arduous experience than ever. The credit crisis that resulted has spilled over into the broader economy and the Federal Reserve has been closely monitoring both the slowing economic growth and the rising inflation with concern.

To provide triage to the credit crisis in the lending industry, the Federal Reserve has cut interest rates to make it easier for banks and, through the trickle-down effect, home buyers and other consumers to survive the economic fallout. The Fed is contemplating further rate cuts to spur consumer confidence. The cut is intended to provide cheaper rates for the banks to borrow at and, in turn, the banks should lower the borrowing rates offered to their customers. Surprisingly, mortgage rates are currently rising rather than falling. Banks are the only ones profiting from the Fed cuts. Banks can borrow at a reduced interest rate but they are still charging the same or higher mortgage rates from consumers due to the risk they have subjected themselves to in the past by the loosey-goosey lending practices that were common two years ago. The banks are using the Fed cuts to heal their own balance sheets as the banks have also suffered from the collapse of the credit market.

What does this mean for home buyers in today’s market? If you’re searching for your first home or for a larger home, the good (for you, not necessarily the sellers) news is that there is a virtual buffet of available houses to choose from. The inventory of house listings is increasing and prices are continuing to drop. Mortgage rates, however, are back up to the levels seen last fall. The number of home owners who used the dip in rates at the beginning of the year to refinance their adjustable rate mortgages has dwindled and new buyers are skittish without having a crystal ball to determine what will happen to the economy and mortgage rates later in the year.

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Written by: Angie Mohr
Available File Types:Text
Words: 512