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RISMEDIA, March 27, 2008–Whether it’s politics, the economy, international affairs or our personal daily activities, “change” is the operative word.

In real estate, many of the norms and rules that we have operated under have fundamentally changed. In our previous articles, we discussed how our principle financial institutions affecting real estate, Fannie Mae and Freddie Mac, are tightening their guidelines on credit scores, appraisals and loan-to-value on properties in markets that they have identified as high risk. Their obvious goal is to minimize exposure to further losses.

My purpose for mentioning this is that many real estate markets are in a prolonged down cycle and we need to make sure that our sales approach with prospective clients take all these issues into account. It is a new world order for many real estate professionals and educating or qualifying buyers and sellers has renewed importance.

Helping Sellers See the Reality of the Market

In many locations throughout the U.S., home values have declined and have not stabilized. Sellers need to have a realistic expectation of the value of their home.

The first issue to be addressed is how much equity they have in their home. Their equity may be the determining factor to their ability to sell their home. This is where the appraisal becomes important to the process. There is incredible pressure coming from both the Federal and State governments to ensure the independence of the appraisal process. The cumulative effect of this pressure will be to reduce the appraised value of many properties in “high risk” markets.

When developing your Comparative Market Analysis, be certain to follow the minimum requirements that have been implemented by Fannie Mae. We outlined these guidelines in our first article, “The Importance of the Appraisal in a Declining Market.”

Finally, when writing the sales contract, you need to consider writing a 60 or 90 contract expiration date into the agreement. In today’s market, you need to assume that Murphy’s Law will come into play. In addition to the guidelines that can extend the time to gain loan approval, Lenders have reduced staffing in their underwriting departments adding time to the approval process. This extended time in the sales contract is equally important to the buyer.

Guiding Buyers in the Process

Buyers, also, need to understand the changes to the home buying process. While many potential buyers are waiting for the real estate market to bottom out before purchasing a home, they need to understand that the guidelines being instituted may result in many loan programs that they may qualify for today, may not be available tomorrow.

Qualifying the borrower should be done early in the process. We are not referring to the “pre qualification” letter of the past based on buyer supplied information. Client information needs to be validated. Ascertaining the buyer’s credit score(s), determining their income, assets and employment, are critical to determining what price home they can qualify for as well as what loan programs.

In spite of the various restrictions or limitations to loan programs that we have discussed, there are exceptions to the guidelines that may open up other loan opportunities to consider.

Veteran Loans (VA)

Individuals who have served or are active in the military (including National Guard) are not subject to these credit score or other guidelines. A VA loan is a 100% financing program with attractive interest rates and the opportunity for the buyer to pay little or no closing costs.

Federal Housing Administration Loans (FHA)

Each day, we read more pronouncements from our Federal Banking regulators and Congress recommending an increase in the role of FHA to underwrite loans that Fannie and Freddie cannot. Principle benefits of an FHA loan are the flexible underwriting guidelines and availability to those borrowers with less than a 620 credit score.

Portfolio Loan Products

These are mortgage loan programs offered by a bank or private investor. Since there are no rules or encumbrances governing the Lender, each loan is evaluated on its own merits. These unique loans would be funded by the bank / investor and not sold to Fannie or Freddie.

With each of these options, you need to discuss which may apply to your client. Let your Mortgage professional research what option best suits their needs.

Our intent in identifying these issues and options was not to be all inclusive or suggest that other options might not be available. The rules are changing daily. Interest rates and loan programs often change numerous times during the day.

The fact is that the home buying process has gotten considerably more complex with a declining number of financing options available from a decreasing number of lenders.

As a real estate professional, you need a team of experts, from yourself to a mortgage professional to an appraiser, to properly support your sales efforts.

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