THE TOUGH CUSTOMER- Want a house? You'll probably need a loan

According to some recent media reports, we're in the midst of the worst housing and credit crisis since the Great Depression.

The fallout in Charlottesville, however, has so far been milder than in many other areas of the country. Indeed, while the latest Charlottesville housing numbers suggest we may be creeping closer to the dismal national averages, the relative strength of the local economy is likely to keep prices from sliding into crisis territory.

As a result, local real estate mavens like Jim Duncan, who maintains the blog RealCentral VA, say, "Now really and truly is a great time to buy a house– if you're buying for the right reasons and you intend to actually live there for a couple of years."

But what about that "credit crunch"?

Mary Prior, owner of local mortgage broker Tailwind LLC, says mortgage money is "out there, and freer than you think."

The reason is that the "credit crunch" means one thing on Wall Street and another thing on Main Street. On Wall Street, it means billions of dollars in "paper" losses by banks and investors. That generates headlines, and while it also means banks have less money to lend, business on Main Street has not ground to a halt.

So, while some things have changed, some have remained the same.

Even the notorious subprime loans– which carry higher risk– are still being written, Prior says, although she admits they're "not as available" as other types of loans.

Prior also says that mortgages funding up to 97 percent of the value of a property, known in the trade as "loan-to-value" or LTV, are available, meaning a buyer would need only a down payment of 3 percent of the purchase price. But beware: extra monthly costs are associated with  high LTVs. 

Prior says lenders still look at the same criteria they always have: credit scores, assets, other debts, LTV, and of course, the borrower's income.

She emphasizes, however, that no single factor will determine whether someone is approved. Even a poor credit score can be overcome, she says.

A would-be buyer doesn't need a mortgage broker to obtain a loan– everything can be done by the borrower himself– but Prior (no surprise!) contends that using a broker has many advantages.

She explains brokers have access to quotes from several dozen lenders, although she herself has a half-dozen or so with whom she typically finds the best deals.

Although there's no assurance, a broker typically has more time and expertise to shop around for better deals. 

Prior further explains that brokers educate clients on the home-buying process, and as anyone who has purchased a home can attest, the process can be bewildering, not to mention unexpectedly expensive. Closing costs, such as attorneys', title search, and recording fees and other items can run as high as 2 percent of the purchase price. On a $200,000 house, that's 4,000 extra simoleons.

Finally, she says, a broker can help ensure that a loan goes through by keeping the paperwork moving. Perhaps most importantly, brokers help repair credit problems that pop up during the process, which can often be thorny and frustrating to resolve.

The rub is, of course, that brokers need to be paid. Typically, their fee gets rolled into the loan, so when using a broker, Prior cautions people to compare competing loans' annual percentage rates, called APRs, which are the total costs of the loans, and not just their interest rates.

Whether a buyer uses a broker, Prior recommends that before the search for a home begins, a buyer should get pre-qualified for a mortgage. The first step, she advises, is to take an honest mental picture of your financial situation– credit history, existing debt, and income– to estimate what's a reasonable and manageable monthly payment.

Anyone thinking about buying a house should not be scared by today's headlines. No matter how great the professionals who are hired to help, being an educated consumer is the best defense, and in our opinion, a necessity. 

Got a consumer situation? Call the Hook newsroom at 434-295-8700x405 or e-mail the Tough Customer directly.