The Lehman Brothers bankruptcy, no doubt, has caused some water cooler talk at the office. After all, it did help send the Dow Jones down over 500 points on Monday (9-15-08). But in the carnage that sometimes is Wall Street, what does that mean for you, your mortgage, home, ability to buy or sell, obtain financing for real estate, etc…? Here’s how some of the experts weigh in on the “fallout”:

What efffect does all the bad news have on mortgage rates?

According to bankrate.com, the interest rate has fallen a little. The average 30 year mortgage is now down to 5.78%, down from 6.08% last week. Just last month in August, the rate was about 6.5%.

The decline in interest could be only a temporary though. With all the news from the past weekend and the rough market yesterday, it shows how risky mortgage investments are these days… which could drive the rates back up. Also, the rates could go up if Lehman decides to dump their mortgage related investments as well.

So is it a good time to buy a home?

The short answer is yes. However, with the subprime mortgage crisis, lenders are increasingly picky about who they’ll lend money to. Lenders, on average, are requiring a higher down payment now than they did just 18 months ago. in 2006, it wasn’t uncommon to get into a house with zero down but now many companies are requiring 5% or 10% down and more, especially if you have less than great credit. Also, be aware… folks that have less than stellar credit will find it nearly impossible to get those rock bottom rates.

I’m a first time home buyer, does that mean I’m not going to be able to get a loan?

Not necessarily! The good news is that the government wants you to own a house and they provide incentives for people to invest in their first home. See: $7,500 tax credit for first time home buyers.

If you don’t have the credit history of “seasoned” home buyers, an FHA loan may be the best route for you.

So, why do we even have a mortgage crisis anyway?

A few years ago, during the “housing boom”, mortgage companies were willing to lend money to people with pretty shaky credit. Mortgage companies were able to borrow money cheap and in turn dish it out to home buyers. Of course, some of those loans have come back to bite them.

In short, a lot of lenders made bad loans. Loans to people that wouldn’t be able to pay them back. After the buyers closed on their new home, Lenders would then sell these loans to investers, who then abosorbed the risk for potential high returns. Unfortunately, even to obtain the loans, some buyers (with really risky credit or a higher debt to income ratio) would have to get an adjustable rate mortgage (ARM). After a set time, these mortgages would reset their interest rate and many of these buyers found themselves unable to afford the mortgage payments. With the higher house payments, price of fuel and the subsequent rise in price of goods and services, it really put a squeeze on people. Truth be told, it put a squeeze on people who really couldn’t afford their new home to begin with…. There was a lot of “house poor” folks! Oh I forgot to mention, that a lot of these loans were “intersest only”, meaning that the mortage payment was NOT going to the principal. Those home owners were counting on the value of the property rising to offset the fact that they were not paying anything toward the principal. It wasn’t a problem for awhile, but with the glut of foreclosures on the market, those values started to decline and many home owners found themselves owing more for a house than it was worth!

Although foreclosure rates are up in Waco, the areas biggest hit with the scenerio I mentioned are California, Arizona, Nevada, New York, Florida, etc… Waco (and Texas in general) have been pretty good as far as home affordibility goes. Have you ever watched HGTV?? They have these shows, what you get for your money. Those home prices blow my mind! In California for instance, 1200 square foot home – 3 bedroom 2 bath – NO yard to speak of for over $400,000!!! I saw one such episode, the couple that bought the house had to be in their early to mid 20s. I don’t know about you, but a $400,000 loan is a pretty big payment for anyone, but especially for a someone in their early 20s who is “just getting started in life”.

So in a nutshell, the mortgage crisis was brought on by people who got loans they couldn’t pay back, lenders giving money to people that couldn’t pay it back, and a “renters mentality”. Meaning, zero down, low down = no or little equity in their home. Some folks literally packed their stuff, put the keys to the house on the bar, moved out. Some of those buyers didn’t even tell the lender they moved!

If you are having problems paying your mortgage, plenty of lenders are willing to work with those buyers now more so than ever! If you find yourself unable to afford your payments, CALL YOUR LENDER and see what they can do to help.