Why July May Be The Best Time To Write A Purchase Contract In 2008
It's a terrific time to buy your Indianapolis home, but not because homes happen to be affordable. It's a terrific time to buy because the variety of mortgage products available to home buyers looks poised to shrink. Monday, Alt-A mortgage lender IndyMac Bank stopped accepting mortgage applications and it's likely that other Alt-A lenders will likely follow suit. Alt-A loans are ones in which borrowers can't (or won't) verify one of two major underwriting criteria:
- Evidence of income
- Evidence of assets
Since the Credit Crunch began last July, Alt-A mortgages have been a steady source of funds for 'in-between' borrowers -- those that are not quite prime, and not quite sub-prime. IndyMac was among the largest lenders of its type and had outlasted many of its peers. Its position as a market leader and subsequent exit from lending means that the remaining Alt-A lenders will likely make one of two choices in the coming weeks:
- Raise rates and fees because of greater Alt-A mortgage risk, or
- Follow IndyMac's lead and exit mortgage lending altogether
Both outcomes would be harsh for home buyers of all types because when any large bank takes mortgage-related losses like IndyMac just did, it tends to create major risk aversion in the market. Risk aversion impacts everyone -- even the 'good' borrowers. Banks have been nervous about lending for several months and so they'd rather pass on an 'average' mortgage application rather than risk getting stuck with a potentially 'bad' one.
IndyMac's exit may cause fewer mortgages to get approved. In other words, buyers eligible for financing today may be ineligible tomorrow. Therefore, if you're a home buyer in Indianapolis and you know your credit profile is less-than-ideal, consider writing a purchase contract sooner rather than later. Your mortgage options may be thinning, and the ones you have may be getting more expensive.