The American Dream is belief in the idea that with freedom comes the possibility of prosperity and success. In the 1931 book, “The Epic of America,” historian James Truslow Adams describes the American Dream as “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”
Homeownership has become synonymous with the American Dream. But when the housing market buckled in the wake of the economic downturn, the institutions that had made homeownership possible for the masses tightened their purse strings to survive. This put the American Dream out of reach for many people.
However, the American Dream is making a comeback. As the economy slowly improves and the buyer’s market continues to gain momentum, people are once again beginning to see homeownership as a viable option. There are just two questions on the minds of potential buyers: How hard will it be to get a loan? And how much will it cost?
You’ve been approved!
For most people, the biggest obstacle to homeownership is their inability to secure a loan. Looking back, the consensus is that certain institutions and programs had made homeownership too easy, and as a result, many people took on a responsibility they couldn’t handle. Some of the institutions and programs no longer exist, which could make it harder for certain people to secure a loan, says Greg Petree, branch manager of Ascent Home Loans in Chattanooga.
“Countrywide had a program called Fast and Easy. As long as you had a credit score above 700, you didn’t have to have any income documentation, and in some cases, you didn’t have to have the home appraised. But Countrywide is gone, and so is Fast and Easy.” Also virtually gone is 100 percent financing, which Petree says never should have been introduced. “If someone doesn’t have a dollar of their own money in something, then it’s too easy for them to walk away from it. That’s what happened with a lot of the foreclosures.”
Today, potential homebuyers must provide comprehensive documentation when applying for a loan. While this policy might be more stringent than the one in place a few years ago, it’s still easier than it once was, Petree says.
“In the nineties, you had to provide original documentation, and you had to overnight everything to the underwriter. We’re back to documenting everything, but as long as you have your paycheck stubs, and your taxes are in order, you have what we need.”
Aspiring homeowners must also be in good economic shape, although Petree stops short of saying it’s more difficult to get approved for a home loan now than it was a few years ago. “Fannie Mae has adopted a 45 percent debt-to-income ratio. If you go over that, they won’t approve you for a loan. FHA will go up to the mid-50s, but you have to have supporting factors, like long-term employment with the same company.”
Whether or not it’s more difficult to get a home loan today than in 2005, mortgages remain the biggest monetary commitment most people will make. However, there’s still one way to save tens of thousands of dollars over the lifetime of a loan: buy a home now instead of later.
Our interest is growing
One of the most important steps to take when choosing a home loan is finding the right interest rate. According to HomeLoanBasics.com, the difference that just one percent higher or lower can make can sometimes be measured in tens of thousands of dollars. Plus, even a quarter-point difference can mean thousands less in interest payments.
While a homebuyer can do some things to obtain a reasonable rate, such as making a large down payment and getting rid of debt, consumers are generally at the mercy of the economy. When it’s good, interest rates go up, and when it’s struggling, interest rates drop.
Petree says interest rates are as low as he’s ever seen them, but with the economy on the mend, he expects they will rise. “The only reason interest rates are as low as they are is because the economy is still weak. And they’ll probably stay where they’re at through 2011. But as the economy recovers, they’ll go up. I expect them to be in the sixes before it’s over.”
With that in mind, now would be a good time for people with the means and the desire to purchase a home to do so, Petree says. “Due to the number of foreclosures on the market, there are a lot of good bargains out there. Plus, interest rates are still low.”
Although the American Dream took a hit in recent years, it’s on the mend, and making available to those with the ability a life that is “better and richer and fuller.”