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Thursday, January 15, 2009

What I have learn so far about getting a mortgage

Ok..enough about poems and cricket noises. Back to reality and that is buying a house as one of  my new 2009 resolution. Property prices fell by just 0.4% in November 2008 compared to 1.3% in October which makes an annual fall of 13.9%.  Having waited for one year you have saved thousands.  If you wait you could save yourself thousands more, possibly…or could you then miss out?  Is the small fall a sign that the property market is beginning to bottom out? I hope so but maybe not yet. A recent forsale by owner house in my humble neighborhood is still asking for $200+k but in a few months when the banks start sending "I want my money letter", let's see if it will drop to $150k which I have seen happenned to another just down the street. The factors for a property price are simple: Supply +  Demand + Mortgage


So let's look at all of them in turn:

Supply: At the moment, there is plenty of supply.  Houses are staying on the market for months. New developments are particularly in supply as possible new sellers are staying out of the market where possible.


Demand: There is not much demand because property prices are falling.  A recession is here and unemployment is expected to rise to perhaps double digit range per our 5-day pending inauguration President Elect Obama.  Moving and buying property is expensive.


Mortgage:  This is the giant and the reason why property prices have risen so much in recent years and subsequently fallen.  To secure a mortgage banks need to lend to each other.  As banks have massively shrunk their lending, mortgages are now much harder to secure – mortgages are being approved at less that half of last year's level.  Without a mortgage most people can't buy a house.  Until this changes the lack of mortgages available and being approved will continue to feed the low demand which will keep property prices down, and with a recession, higher unemployment and more repossessions, prices are likely to keep falling. Affordability has of course improved which will encourage some new buyers to look at the market.  Many are still waiting to see how much further prices will fall. However, it is worth looking at property and making preparations.  You need to be ready.  As soon as banks do start lending (and this may be forced on them by the government), prices will level for a while and then gradually start to climb.  Looking at property also helps you to decide exactly what you want.  And if you find your perfect home you may want to buy now rather than risk losing it.  Remember if you want to buy now or buy soon, make a low low offer.


If you are thinking of buying property you need to prepare:

Your finances need to be in order.  What deposit do you expect to have?

How much do you want to spend on a mortgage?  What mortgage can you get? Speak to a mortgage adviser or look online.  How much do you want to spend on making your house your home?  Be realistic – moving house and owning a home can be expensive. Your employment needs to be secure.  The economy is shrinking, and huge companies are failing.  How safe is your job?  What would you do if you lost your job?  Do you have savings to fall back on?  If not, you may want to consider keeping some of your deposit as an emergency fund. In our household, we keep $1000.00 in checking account and another 4 month expenses lock in a somewhat liquid account  in case it starts pouring down.


Finally, look at property, revisit your figures and wish list and revise all preparations.  You may only buy in a year's time but you may buy in 3 months time.  The key is to keep researching and be prepared for your perfect – and well-priced - property.

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