Photograph showing the headquarters of the U.S. Mortgage company Fannie Mae in Washington, DC, on 14 July 2008. US mortgage giants Freddie Mac and Fannie Mae are set to be put under government control in an attempt to rescue the firms, media reports say on 07 September 2008. Top bosses would be removed under the US Treasury plans which could see the US's largest ever financial bail-out.  EPA/MATTHEW CAVANAUGH

Time to Buy, Thanks to a Loosening of Loan Restrictions

If you’ve been waiting for home prices to fall before you jump into the market, you might have a long wait. It still costs less to buy a house than it does to build one, and with recent changes to rules covering many conventional loan programs, now could be a great time to embark on the adventure that is home ownership.

The two biggest government-sponsored buyers of residential real estate loans are the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac. As of July, they’ve loosened restrictions, making it easier for people to get home loans.

First, they decided to eliminate derogatory credit remarks on some credit reports, which will improve some people’s credit scores and help them qualify for a larger loan amount, or perhaps a lower interest rate. Second, they increased the debt-to-income ratio from 45 to 50 percent. If your combined monthly income is $6,000, the 45 percent debt-to-income ratio would only allow you to put $2,700/month toward monthly debt. Now, with that same income, you can put $3,000/month toward debt. Debt includes things like your mortgage payment, any car payments, revolving credit card debt, and student loans. If your situation allows you to put the additional $300/month toward a mortgage payment, that enables you to spend almost $60,000 more on a house at today’s rates, potentially moving you from a two-bedroom, one-bath house with a single-car carport to a three-bedroom, two-bath house with a two-car garage.

This change is important because Fannie Mae and Freddie Mac own a huge percentage of mortgage loans, and influence even more. Banks underwrite to Fannie Mae and Freddie Mac standards so they can sell to them.

So, if you want to buy a house, you may be able to get a larger loan with the same income. I understand that there are benefits to renting over buying—like having a landlord who is responsible for the structural repair and upkeep of your home, but there are many great perks to owning your own home as well.

First, real estate is one of the best long-term investments you can make. Although home prices may rise and fall in the short term, the trend during the last 40 years is clearly upward. Ask your parents what they spent on their first house and you’ll see what I’m talking about.

Another benefit to owning over renting is that much of your new monthly housing cost is tax deductible. Interest rates remain near historic lows. In fact, in my 40 years in the real estate business, the lowest interest rate for a 30-year, fixed-rate mortgage I recall was 3 percent, and it was only that low for about a day. Today, rates range from about 4 to 4½ percent. Compare that to the peak interest rates in the 1980s, when they were above 14 percent, and you’ll understand why I’m so enthusiastic about today’s rates.

Finally, there are benefits to home ownership that you can’t put a price on. It feels empowering when you don’t need anyone’s permission to change the landscaping, replace the carpet, or paint your dining room lavender.

All in all, these changes from Fannie Mae and Freddie Mac will allow more buyers to qualify and at higher prices than they would have in the past. But remember, just because you can qualify for more, doesn’t mean you should. Review your personal finances and consider the fact that your mortgage payment won’t be your only house-related expense; you’ll need to budget for repairs and upkeep, too.

If your situation supports it, now could be the perfect time to venture into the world of home ownership.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.