by Raffi Soghomonian

Subprime mortgages have been credited for bankrupting well over 180 major lenders and seriously damaging operations at many major mortgage firms. They’ve reportedly wiped out hedge funds and tens of thousands of jobs, and have led to millions of foreclosures with thousands more on the way. And as if that weren’t enough, subprime mortgages are also blamed for massive volatility in the stock, bond, credit, futures and real estate markets here in the U.S. and around the globe. 

We know that financial market prices run in cycles. Smart investors understand this and take advantage when the opportunity presents itself. Just recently Ed McMahon faced foreclosure on his home and Donald Trump offered to bail him out. Why? Because Donald Trump knows a good deal when he sees one.

Since the credit crunch late last year, lending guidelines have made it more challenging to obtain a mortgage loan. If you submitted a loan application recently you may have noticed it. The problem is that lenders got so conservative that they went too far with their restrictions. Thankfully, we are slowly seeing signs of relief with minor changes to help streamline the loan process to some degree.

Local property values have been under attack lately due to the lack of available financing, which has created a shortage of buyers, putting pressure on prices. And with the addition of foreclosures and bank-owned properties, there is more inventory now, making it a “buyer’s market.” Many real estate experts agree that this market offers opportunities we have not seen in years, and it is a good time to buy a home right now.

As the cost of a mortgage loan comes close to the amount of rent one pays, the equilibrium starts to shift, making homes more affordable for entry-level buyers. Home prices are just about at this point and will certainly catch the attention of many prospects waiting on the sidelines for the chance to make their move. If you consider the tax consequences of home ownership, in some cases it could be less costly to own a home than to rent one. Consult with your financial professional   to determine if this applies to you.

Many have heard about “first-time home buyers” programs but do not know much about them or how they work. Even in today’s lending environment there are lending programs that allow 100 percent financing for first-time home buyers, veterans, teachers and other specific classes of borrowers. These programs are designed to make it affordable for those with little  or no money to put down. The California Housing Finance Agency, the Federal Housing Administration and other institutions make this possible.

These agencies offer down payment assistance programs that provide funding for those who qualify. There are specific income and sales limits that apply. Some city municipalities have also allocated funds for first-time home buyers. These programs are not gifts; rather, they are low-interest loans, and in most cases there is no repayment for five years.

Many people will be thinking the 100 percent loan programs were the culprits behind the credit crisis in the first place and wondering how is it possible that these programs still exist. They are available only to those who can show they can afford the loans. What we saw in the sub-prime market is lenders allowing non-qualified borrowers to get mortgages, borrowers with poor credit and without income documentation. In today’s lending environment it is critical to have good credit and income documentation to show the ability to make monthly payments. To find out if you qualify for 100 percent financing, ask your mortgage professional.

Raffi Soghomonian is a mortgage planner and investment advisor. He is the president of BIX Equity Management, Inc. You can call him at 650-697-4888 or send e-mail to raffi@bixx.com.