The Real Estate Market and the Credit Crunch

By shaye • August 19th, 2010

Few people have the ability to purchase properties through cash. Most purchases in real estate are done with the aid of loans. For example, most homebuyers obtain mortgage to finance the difference between their down payments and the purchase price. When investors want to purchase investment properties, they would always resort to loans. They do this to manage their funds wisely.

Mortgage is one of the most common financial transactions property buyers would obtain. However, what will happen to these potential buyers in an economic situation like this?

Because of the recession, most lenders and financial institutions are on a credit crunch. As a result, the real estate market has been affected. Moreover, most borrowers are not qualified to loan, while some cannot afford the interest rates.

What is a credit crunch?

Also known as credit crisis, this condition leads to reduction of funds made available for loaning. Some lenders would want to extend credit. However, they cannot even if they want to. This has happened because of the changes in market conditions and newly implemented restriction in lending. Lenders become highly selective of their borrowers and the qualifying process becomes stricter. They also fear losses that they will prefer to engage in a less risky transaction to be assured of their interests.

Impact to the real estate market

Credit crunch has had a negative impact on the real estate market. The tightening of requirements for mortgage has made few qualified buyers among the many prospects. Since, there aren’t many qualified buyers compared to the numbers of property for sale, the selling has also slowed down. And more properties are losing their value for being stale in the market.

Some buyers may be qualified at first. However, with sudden existence of hardships, the occurrence of financial problems may take place. And with the increase of interest rates during credit crunch, periodic payments to mortgage may eventually become unaffordable. As a result, borrowers would miss payments and eventually lead to delinquencies. In the end, they may lose their homes by foreclosure.

Tips to the Buyers

Some buyers may not allow recession to stop them from purchasing properties. Since getting a loan seems like a competition already, it is important for buyers to be on top of their game. And for what? To be guaranteed of approval for loans and to get the best possible deal there is.

Doing this should not be hard. It all starts in your ability to pay off the existing loans and credits, as well as how timely payments are made. During these times, make no mistake in having late payments. These could adversely affect credit scores, as lenders use these as a basis for granting the loan. While no major purchases are made, it is important to repair credit. If there are no doubts and problems as to credit performance, it is important to monitor it constantly for any inaccuracies.

Every consumer needs to keep his or her credit good or even excellent. This way, lenders would not consider them a risky investment should any loan application take place in the future.

Learn more about real estate tips and discover great looking properties simply by checking out Maryland Community Guide and RealEstate in MD.


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