(06/02/2010) On the bust side of the boom, the housing market has emerged in a new world of real estate.
Distressed properties litter the market. Tighter underwriting rules apply. Appreciation isn't guaranteed. Regulation is stronger. Cash talks.
To help you navigate the tumultuous change in housing, noted real estate expert and author Ilyce Glink recently penned "Buy, Close, Move In!" (Harper, $14.99).
The insight it offers on market changes alone is worth the price of admission.
To know what changes to expect when you head out to buy a home, Glink's tome offers "Ten Things That Have Changed in the Real Estate Industry."
Here's a look at just some of those changes.
• You need money on the table. Glink refers to investor Warren Buffett's edict: have "skin the game," which means don't leverage yourself to the hilt. The larger the down payment, the better.
A sizable down payment gives you an equity stake in your home and a better shot at landing a loan for less. During tough times, with an equity stake, you'll be less likely to walk away from your home than you would if you put little or zero down (provided you can even find such a loan today) and have no stake in the home.
Cash is especially crucial when buying investment properties because financing options are even more limited for investors than for owner-occupied home buyers.
Glink says today's investors seek positive cash flow acquisitions, where income is greater than expenses, or at least neutral cash flow deals, where the income covers expenses.
While home buyers can still get in the game with as little as 3.5 percent down, banks often want to see 25 percent or more down from investors.
• Credit is tight. "In the past," writes Glink, "If you had a pulse and a credit score that wasn't terrible, you would be able to push your refinance papers through in a couple of weeks."
No more. You'll need a credit score in the high 700s to get the best loan. You'll have to prove your employment, income and assets, reveal your debts and expenses and prove you can make the mortgage payment.
• Home ownership isn't a right. It's a responsibility. A major lesson from the housing boom taught us not everyone can or should own a home. Today's housing market is littered with homes purchased by buyers who later discovered they could not afford interest rate resets or the mortgage once the economy tumbled and layoffs reduced or erased income.
• Smaller is better. The era of energy- and money-gobbling McMansions is over. Smaller homes are less expensive to own, to operate, to maintain and easier to sell. Using less energy, they are also greener. Who needs all that space anyway?
• Housing information is more transparent. "The real estate industry has long operated as though the buyer is a bird in a cage with a dark cloth covering it," writes Glink.
Thanks to both regulatory reform generated by the housing crash and the Internet boom, that's changed.
Since Jan. 1, 2010, home loan originators must give you the new, mandated Good Faith Estimate (GFE) within three days of accepting your application. At closing, the lender must provide borrowers with the new Settlement Statement HUD-1, the final line-by-line list of mortgage and closing costs.
Meanwhile, the Internet has not only made it easier to shop for homes by making previously private multiple listing service information public, a host of independent web sites offer enough credible news and information to make even first-time buyers comfortable with the complex home buying transaction.
• Fast appreciation isn't guaranteed. With home prices down as much as 50 percent since the peak of the market, buying a home can be a good deal. However, buy because you can afford the home and owning is a better deal for you than renting. Don't buy because you expect appreciation to make you rich over night.
Some experts say a full recovery could be a decade away.
In sane markets, home values appreciate over the long haul.
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