Apr
1
Is Sub-Prime Lending in Seattle Really A Concern? Part 2
Written by: rebecca and filed Under Blog, Lending, Real Estate |
Previously, a friend reached out to me with some concerns about buying real estate given the current state of the sub-prime lending market. It is a common concern that I hear being spoken about around the water cooler. Part 2 in this series covers what will happen to the sub-prime lending market; specifically if it will go “belly-up”.
So let’s refresh…
Question: What are your thoughts on the sub-prime market going belly up?
Question Restated: Predict whether or not an entire segment of the lending industry goes away (and takes thousands of jobs with it).
Answer: It won’t completely.
So what are my real thoughts?
This is a hard question to answer in some respects, because it depends on what one means by “belly-up”. And even more-so, how you define sub-prime. Certainly the sub-prime market is going to look and feel dramatically different than it has in the past few years, but based on what I am hearing, there will still be options for buyers out there that can’t afford to put 20% or even 10% down.
A few years ago, the prevalence of FHA loans was much higher, but I haven’t had a Buyer with an FHA loan in over 3 years. With FHA, there are some wonderful programs out there that use adown payment assistance program that allows the seller to contribute to the buyer’s down payment. With the recent shake-up of the sub-prime market, I wouldn’t be surprised if the use of these programs becomes more prevalent again, but without a doubt, these loans will be under more scrutiny during the approval process.
For those buyers that are not able to come up with a 20% down payment, a new benefit has come forth - tax deductions for mortgage insurance. One of the many reasons 100% financing became so popular was that it provided a way to eliminate mortgage insurance . This was a huge benefit to a buyer/borrower because the interest on the second mortgage was tax deductible, while there was no tax deduction with mortgage insurance. There are limitations to this tax deduction however; you have an income cap of $100,000.00. In some parts of the country, this is still a substantial income, but here in the NW, and specifically in Issaquah where the average household income is $139,204.00, that is not so much.
Overall I think that there will always be some options out there for those who want to pursue the dream of home ownership, the money is just not going to flow as “fast and free” as it has in recent years.
Next up…my thoughts on how this shake up will or won’t effect the Seattle market.
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