Killington Real Estate Blog

It seems that the pendulum has swung completely in the other direction.  None of us who are even just slightly tuned in to the news can avoid hearing about the “mortgage crisis” that many in the US are facing.  The truth of the matter, however, is that the “overlending” (i.e., lending money to people with “borderline” ability to pay) which created the problem initially wasn’t done in Killington.  In fact, there is only one foreclosure in the Killington market that I am currently aware of.  The “fix”, however, whereby lenders have tightened lending standards like a noose are being applied universally, including to the Killington market.

About a week ago, we were told that Fannie Mae and Freddie Mac would not finance a condominium purchase in Killington.  The problem initially seemed to focus on the properties being considered “investment” properties, not second homes.  Another issue seemed to center around requiring added protections for mortgagees and guarantors.  These safeguards involved making changes to condominium documents which is not an easy process.  Thirdly, there seems to be an issue financing a property that has extensive commercial activities such as restaurants and health clubs.  It seems that new “issues” seem to be identified daily.

There is a meeting of representatives of the Boards of many of the Killington condominium associations on Saturday, June 7th.  The difficulty in financing condominium purchases is a major topic for discussion on the meeting agenda.  Two attorneys, familiar with the Killington condominium documents, have been asked to review the new lending requirements and summarize recommendations for the attendees.  These recommendations will then be reviewed by the Association Boards which may, in turn, recommend amendments to the existing condominium documents.  I just hope that if these changes are made, new requirements don’t emerge, necessitating more changes. 

This all seems so unnecessary.  Had lenders used reasonable and judicious qualification standards to begin with, we would not be in this predicament.  In addition, these requirements are being applied across the board whether or not a local problem exists.  The “pendulum” has swung to the other extreme.  Let’s just hope that it doesn’t take long to reach a point of sanity and equilibrium!

What do you think?

Pre-qualification is the first step in obtaining mortgage financing. A potential borrower answers a few questions to provide the loan consultant with a quick snapshot of the borrower’s income, existing debt, accumulated savings and whether or not there is a co-borrower. Signature(s) allow the loan consultant to run a credit report and begin to determine what loans are good candidates for this particular client. However, there are literally thousands of loan programs available. It is important for the loan professional to know the long-term financial objectives of the prospective homeowner.

Pre-approval allows potential homeowners to shop as cash buyers, and that means negotiating power. The seller will take an offer from a pre-approved shopper much more seriously and may even accept a lower bid because they know the financing is in place and the deal is secure. 

Intermediate Fixed Rate mortgages (sometimes referred to as Short-Term Fixed Rate mortgages, or Hybrids) come in numerous varieties; the 3, 5, 7 and 10-Year Fixed. These are all 30-year loans that carry a fixed rate for a set number of years, and then roll over to an Adjustable Rate Mortgage.

For example, in a 7-Year Fixed Rate scenario, the rate would be fixed the first seven years, and the loan becomes an Adjustable for the remaining 23 years. The main advantage of these hybrid programs over a traditional 30-Year Fixed loan is typically a slightly lower interest rate.

These types of loans often work well for people who do not plan on being in their home for an extended period of time, such as first time home buyers or, perhaps, vacation home buyers. The most important question to ask when going into an Intermediate Fixed Mortgage is how long will the borrower need the money?

If the borrower intends to sell the home in four to five years, then a 5-Year Fixed loan offers stability and a lower interest rate for the time that money is needed. However, in this example it would not be wise to pay points up front to obtain a lower interest rate, because the likelihood of recuperating the cost of those points would be diminished with the short tenure in the loan.

The borrower’s financial planner and mortgage consultant should work hand-in-hand to provide guidance to the borrower in these matters.