Is the federal government looking for the best for you? Do you think politicians want you to see your part of the American Homeownership Dream come true? One has to wonder.
Have you heard that the feds want to take out the mortgage giants Fannie Mae and Freddie Mac? Remember: the government stepped in a few years ago to support the giant lenders during the mortgage collapse.
While we can generally agree that less government is a good thing, it is not always the best route. With so many state and local governments fighting for every dollar they can get from the United States government, it seems like everyone is seeing dollar signs in neon lights. So it stands to reason that a smaller “GREAT GOVERNMENT” and less participation is a good thing for taxpayers and other municipal governments.
But this is the reason why this mortgage withdrawal may not be so good for the real estate market.
It’s a general consensus that the Obama administration’s proposals to stop supporting the mortgage giants will mean higher fees and interest rates for everyone seeking a mortgage. This could mean that first-time home buyers, especially, might be discouraged from giving up a rental and owning a home. Other consequences include more expensive home loans overall and less competition in the loan business. We all know the lesson of less competition: higher prices. As housing affordability is reaching “normal” levels, we may see another hit in the housing market.
Even heavy hitter The Wall Street Journal He says the looming changes in the mortgage industry will lead to smaller mortgages and higher down payments. Coming in October of this year, Fannie Mae and Freddie Mac will support smaller loans. This will likely make many houses on the market much more difficult to finance. The mortgage giants also plan to increase the required down payment from 5% to 10% over time. Several experts believe this will drive lenders out of the housing market in droves. That exodus would make it difficult for tenants to become buyers.
I also came across a realtor blogger in texas who recently signaled Freddie and Fannie’s decision to raise rates. The mortgage giants (again, backed by your government) have increased what they call “risk fees.” This means that if your credit score is less than 740, you need a higher down payment or pay a higher fee.
So what does all of this mean to me, a first time home buyer?
Why is the government trying to fool first-time home buyers? Well, that is unlikely to be your goal. (I’m not an elected official though, so who knows) The most reasonable answer is that the government wants to stop supporting an industry that has generally made mistakes. While that’s a noble cause, the bottom line is that a few bad decisions don’t mean the entire industry is broken.
This is the good news.
It is a good time to buy. Free yourself from the shackles of rent and into a home, before rates and costs start to go up, up, up. Check with a local lender for pre-approval information to see how much home you can afford. Good luck!