As we get ready to say goodbye to 2008, it's worth looking back at the year that was for home buyers, sellers and owners.
Frankly, I wouldn't be surprised if this year goes down as one of the worst ever for housing since the Great Depression.
Housing values fell by double-digits in many metropolitan areas. Housing starts virtually stopped. Inventories of new and existing homes grew dramatically. Mortgage interest rates remained relatively high, even as the short-term Federal Funds rate plunged to nearly zero by the end of December.
Foreclosures reached record numbers, and lenders found themselves buried under stacks of short sale proposals, foreclosure filings and loan modifications. Late in the year, Fannie Mae announced it would stop evicting renters from foreclosed-upon houses if they've paid their rent on time.
Of the loans that had been modified, more than 50 percent went delinquent, reflecting the increasing number of lost jobs and diminished paychecks.
The old lender's maxim holds true: If you don't have a job, you probably won't make your mortgage payment.
Sometime around the middle of the year, when Fannie Mae and Freddie Mac were taken over by the government, lenders realized that having a real job with a real income is central to assessing someone's ability to make monthly payments of principal, interest, taxes and insurance.
Lenders also rediscovered the beauty of having some skin in the game. Except for the USDA's rural loan program and a VA loan, zero down-payment mortgages have dried up.
Sellers aren't happy, but there are plenty of deals to be had, as the economy is expected to get worse at the beginning of 2009. Higher rates of unemployment mean more foreclosures, driving down the price of homes.
The silver lining for home buyers: If you're looking to buy a house, 2009 could be a great year to close on a deal. If you're planning to buy a house this coming year, here's my annual list of New Year's resolutions you should consider making:
As a buyer, I resolve to:
Get my credit and finances in shape Put a lid on spending, perform "plastic surgery" on credit cards and don't max out any one card (in fact, never charge more than 25 percent of your maximum credit limit) or your credit score will suffer.
Don't forget that good credit also means job stability. Most lenders require that you work for the same employer for at least a year, and maybe two, before they'll approve your home loan application. If you're self-employed, they'll want to see at least two years of tax returns before you'll qualify for a conventional loan. If you're offered a better job in your field, by all means take it. But if you want to buy a home, try not to jump from job to job to job within a relatively short period of time, particularly if the job changes are in different industries.
If you want to buy a house next year, pull a copy of your credit history and credit score. Try to reduce the amount of personal debt you have, including credit card debt, student loans and auto loans. While having personal debt doesn't mean you can't qualify for a loan, it will lower the amount of the mortgage a lender might be willing to give you.
Federal law now requires each of the three main credit reporting bureaus (Experian, Equifax and Transunion) to give you a free copy of your credit history once a year. To get yours, go to annualcreditreport.com.
Know how much I can afford to spend before shopping for a home You have three options when it comes to figuring out how far your down payment and income will take you: You can guess. You can pay a visit to your local lender, who will pre-qualify or pre-approve you for a loan. Or you can go online.
Your lender will look at your income, debt, assets and liabilities and come up with the maximum amount you can spend on a home. Once you know how much you can afford to spend, you'll avoid making a common, heartbreaking home buyer error: Looking at homes you can't afford to buy.
Know my neighborhood, and be comfortable with it, before I buy a home there Everyone wants to live on the best block in the best neighborhood. Unfortunately, that location may not be in your budget. Balancing affordability with location means you will have to compromise.
Start looking at various neighborhoods and the amenities they offer. Is there a park? Shopping? Transportation? A house of worship? Do your friends and family live close by? Be careful not to limit your choice of neighborhoods too early in the process.
Spend time during different parts of the day and night in the neighborhoods you like. Visit the neighborhood police department and local schools. Stop by the local park district offices and see what programs and classes are available. Drive the commute from prospective neighborhoods to your job during rush hour.
Interview at least three brokers before hiring one There are traditional agents, buyer agents, exclusive buyer's agents (who never represent sellers) and discount agents.
Many buyers today opt to use buyer agents, or buyer brokers, who represent the interests of the buyer rather than the seller. Look for an agent whose philosophy and mannerisms are compatible with yours. Look for an agent who has ample experience, and who is knowledgeable about the neighborhoods you've selected for yourself.
Read and understand all documents before signing them. So many folks don't even bother to read either their purchase contract or loan documents. That's unfortunate, given the enormous legal implications of a home purchase. But it's a bigger deal this year if you're buying a home in a short sale transaction or a property that's been foreclosed upon. Before you put down any money toward the purchase of a home, understand the process that you will need to go through to buy the home and what it will take to get out of the deal in case it doesn't work out. Take the time to read all documents thoroughly.