I have been involved in both residential and commercial real estate through out my career. Over the last 4-5 months we have been bombarded by the news about all the bad mortgages greedy lenders issued and how now we are all paying the price today. We have also been bombarded about how banks have tighten their lending and how all these sub prime mortgages and no money down loans have disappeared.
Although I feel bad for all these people who just recently could get into a home with absolutely no money out of their pocket, I am glad these bad loans have gone away. Not only our economy, today, suffers because of them, but a lot of these people who have them are now suffering with foreclosures and damaged credit. On the other hand though, as people hear that the banks have tighten their lending standards and don't loan money they feel that they have to have 10% to 20% down payment and perfect credit. Otherwise, any effort to invest into a home would be futile. I have been talking to several individuals during the last two months and all feel the same way. They believe banks do not loan money because that is what they hear in the news and that is what they read in the newspaper. Well, if you too feel this way, I have great news for you!
Do not get confused with commercial lending and commercial banks. That has tighten for sure. However, these type of loans are for people who want to invest in office buildings, shopping/retail centers, and for their businesses.
According to Roger McWherter of IMC Mortgage, residential mortgage lending is still strong and available. People with credit scores in the 500's can still get financing for a home with as low as 0% if they have VA eligibility. People who are not veterans can still get financing with as little as $100 down if they are firefighters, or policemen. Every one else can still get financing with as low as 3% down payment which can be either from their own funds or a gift from a relative with an FHA loan up to . The interest rates are at some of the best levels we have seen for years! This, combined with the reduced home values, makes it the best time time to invest into a home!
Do me a favor. Do not listen to the newscasters paint a bleak picture or read the newspaper telling how bad things are. They want your attention and they will only get it by using sensation. Politicians use fear to get your vote. "If you vote for him he will raise your taxes", or "if you vote for him he will cut your social security" they say. In our world today, unfortunately bad news and fear sell. People turn the TV on to see fires destroying homes or other disasters. Reality TV has become a big hit because people want to see real fear not one portrayed by an actor. It is like driving on the highway and everyone slows down to watch two cars on the shoulder that have hit each other, a police car and a tow truck, not blocking traffic. The curiosity of people causes a slow down and bumper to bumper traffic for miles and for no reason. There is always good news when there is bad news but that does not sell good enough to get your attention. Here are some examples:
- Gas was over $4.00 a gallon just 2-3 months ago and at that time we heard that it is going to go up to $5.00! Oil was at $140+ a barrel and it was going to go to $200.00. Another dooms day. Today gasoline is under $1.80 and oil is under $60.00 a barrel.
- Food prices were increasing, and boy were they increasing. There was talk of inflation and rise of interest rates just a few months ago. Today, interest rates are down and prime rate is at 4%.
- October 1987. Black Monday in the stock Market. Dow Jones drops over 500 points in one day. Big news! Doom and gloom days are coming. Recession, more poor people, how will we recover? I remember people talking about same signs at the crash of 1929 and pictures of traders on the New York Stock Exchange floor looking at the electronic boards with their hands on their heads. Hmm... Does that sound familiar? People bought stocks that horrible Monday in October and made a fortune as Dow Jones rose to history levels in the 90's.
- Mount Saint Helen volcano eruption. Disaster. News show the devastation with pictures of previously huge trees now standing charred and no sign of life anywhere. The "experts" are paraded on the news channels telling us about the ecological disaster for our planet. The clouds will travel east and we will have acid rain. A few years later the area is full of wild life. The trees are back and the forests have never looked better. Just google pictures of Mount Saint Helen and you will see what I mean.
All animals, including humans, through the beginning of time have adapted to the environment they have been exposed to. We have survived and overcome disasters, wars, recessions, and you named it, because we are a part of nature and nature has always survived. The economy always goes through corrections and adjusts itself as nature does to. The economy today is correcting itself and the excessive drop in the stock market is nothing but a domino effect resulting from FEAR. Everything started from bad decisions on sub prime mortgages, bad management, and greed. There are still lots of good companies with lots of cash in the bank that are performing very well. Each day when we get out of bed we have 2 choices. We can start our day by feeling down, be negative about everything that is happening around us, allow FEAR to take over ourselves, and make these newscasters and doom and gloom sayers correct, or smile, have a positive outlook, and prove them wrong AGAIN. Honestly, I prefer the latter. It always takes me further than the first one.
Ref. Roger McWherter, IMC Mortgage, Telephone 913-649-7070
The opinions expressed here are of Dimitri Siscos and are for general information only. They are not intended to provide specific advice and recommendations for any individual
