Is There Hope or Doom on the Horizon?

July 19, 2013

For a long time now, I’ve talked to people who have found it relatively difficult to come up with a 20% down payment and banks have not been very flexible with the 20% down payment requirement. Things may be changing though.  This article talks about what may be an encouraging sign for borrowers. It looks like there is some relaxing of the 20% rule now, with the return of the mortgage with a 10% down payment being seen more widely.  Is this a sign of hope that banks are having money flow back into the economy? 

One part of the economy’s sluggish performance over the last 5-6 years has been driven by the lackluster real estate market. Maybe this is a sign that this trend is reversing and that better days may be ahead or maybe it’s a sign that with the stock market on the rise, banks are easing up on tight credit and lending again.  The easy money era that led to soaring real estate prices (that later collapsed) was a part of the problem.  Is the 10% down payment a signal that we could be seeing those problems resurface?  I’m not sure if this is a sign of good news or potentially bad news further down the road.  Maybe it’s both?

If we start seeing banks lend more freely and real estate prices start to rise along with interest rates, what can you do about all of this? Don’t overreact!  Don’t get in over your head!  I’ve heard people talking about buying “just a little bit more house than we can afford today” or “buying now when we aren’t really ready” because of an expected increase in interest rates that would make borrowing money more expensive.

Buying a home before you are ready is a recipe for failure and is a mistake that is entirely preventable. When we make decisions based on emotion, we often look back at them with regret.  Looking at the prospect of a bump in interest rates as a catalyst to commit to a purchase as major as a house MAY be a good idea in some very limited circumstances, but not most.

Remember, good solid financial basics go a long way toward preventing financial distress over the long term. You may be seeing a lot of news articles and advertisements and hearing talk about why NOW is the best time to borrow and buy.  When you feel the urge to consider it, make sure that you are not borrowing more than you can afford and that you are truly prepared for the purchase.  If you remember those two rules, you won’t make a decision today that you’ll look back at later as one of your worst…