Everyone is making guesses about the future of real estate and mortgage markets these days. Has the market reached its lowest point yet? Where are rates going to be? If I wait to buy, will I be priced out of the market? Or will I get a better deal?These are complicated enough issues — and even professionals don’t seem to offer more than educated guesses. And guess what? If you have damaged credit you have even more to consider than the future of interest rates and home values. For example:
Where is your credit now? And where is it going? Are you cleaning up your act? Paying on time? Improving your score? The difference between prime credit and subprime rates can be many percentage points and impact your monthly payment far more than a moderate increase in overall mortgage rates or home prices. For example, a prime borrower today could get a $300,000 30-year-loan and pay about 6%. The payment would equal $1,799. But a subprime borrower paying 11% would fork over $2,857 a month, over $1,000 more! If that subprime borrower cleaned up his or her credit rating before buying, even if the grade-A rates went to 7.5% and the price of the house increased by $25,000, the payment would still be nearly $600 less than buying today with a subprime loan. If you qualify only for the worst rates it makes sense to wait. But check with lenders — chances are you can do better than “worst” and with a decent bad credit loan you could make a fantastic investment.
Is your best deal available now? Recent statistics show that investors are on the move, and snapping up property again. Prices are low, and interest rates historically so. If you can get a loan with a fair rate, fixed long enough for you to clear your credit problems (at least 2 or 3 years), or even qualify for an FHA loan, today may be your best opportunity. When the market (and your credit rating) recover, you could find yourself with a fair amount of equity and some options for grade-A refinancing too.
How safe are you financially? How secure is your job? Your marriage? Do you have health insurance? One fact lost in the mortgage news is that the most common reasons for bankruptcies and mortgage foreclosures are still the classic ones — loss of income, health problems / medical bills, and divorce. So don’t walk a financial tightrope if you don’t have a good net.
How can a lender help with these decisions? You need to know where you stand today before even trying to predict tomorrow. Before buying, check with several lenders and see what rate you qualify for as your credit stands now versus what you could get once your credit is good. Run the numbers through a mortgage calculator, compare payments, and look at the extra interest paid today versus potential increases in home value tomorrow. No one can give you the cut and dried answer but by gathering as much information as you can you can make a decision you are comfortable with.
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