Any real estate market needs those critical first time buyers. They’re not stuck with a house they need to sell, so they’re free to act whenever they think the time is right. When a young couple or single person decides that they are ready to take the plunge and buy their first home, they usually buy a small, fairly inexpensive home. These sales usually close as soon as the new owner can qualify for a loan. Once this sale closes, the owner of the small entry-level home often purchases a larger, more expensive home. First time buyers are usually the people that start recoveries from bad housing markets.
It’s 2017 and the real estate market has been struggling since it’s peak. Many would-be buyers have been holding off waiting to see what will happen, especially whether prices have gone as low as they’re going to. Now some young buyers are seeing low prices and low interest rates and deciding that the time is right for them. Under more ‘normal’ circumstances, these people would look for a home, make an offer and get busy qualifying for a home loan. That doesn’t work so well right now. There are a few extra stumbling blocks.
Many of the homes currently offered for sale are being sold because their current or former owners can’t afford to make their mortgage payments. This is a problem for their current owners and/or lenders, of course, but it turns out to be a problem for home buyers too. Short sales make up a large portion of the homes on the the market now. This means that the owner owes more on the loan than the home is worth. The seller lists the home near its current value in the hopes that the lender will accept less than the full loan balance when he has a reasonable offer in hand. This is a good deal for lenders. It’s true that they’re losing money because they’re getting less than the loan amount. But if they don’t approve the short sale, they’ll lose even more. Months will go by with the defaulting owner living in the home and not making payments. The lender will spend a lot of time and money foreclosing, and then they’ll still have to sell the house, probably for less than a buyer is offering on the short sale.
When a borrower asks his lender to consider a short sale, the lender requests a lot of information, including proof that the borrower is unable to pay off the loan due to financial hardship. Usually the borrower has already missed several mortgage payments by the time the lender starts requesting this type of information. Whether or not they can convince the lender that they’ve experienced a hardship, the chances that they will suddenly start catching up on payments is slim to none.
Lenders don’t regularly approve short sales, though. Instead they drag their heels by not having adequate staff and continually requesting more documentation. All the time the foreclosure process is moving ahead. Home buyers often make offers on multiple homes, hoping that one of them is accepted by the lender. While they wait and wait, they rent their homes and get discouraged. If you’re a first time home buyer and want to bypass this mess, look at San Diego new homes.
In order for the housing market to recover, the first time home buyers need to be able to buy homes. Until those critical buyers can close escrow and their new home and move in, no one can move forward.