How Foreclosures Affect the Housing Market

Posted on January 6th, 2009 by saman

If you have been watching the housing market the last few years, you have probably noticed how much it changes and how quickly it can change. The economy has a huge influence on the housing market and how people feel about entering into it. It also has a big influence on lenders and bankers and how they approve people for loans on mortgages.

Because of the growing number of homes that have turned to foreclosures for sale, lenders and bankers have gotten more strict when it comes to their lending approvals and have enforced the guidelines and procedures that are in place to help protect against fraudulent lending and foreclosures. People who experience foreclosures often have a hard time with their credit history and if possible it is best to avoid having to have a foreclosure. Advice that lenders and bankers usually follow with people who are applying for a home loan is to not take out more than they can comfortably afford. This typically equates to thirty percent of the total monthly household income as being designated towards housing costs. This is usually considered to be a safe number for a lot of people and those who stay in that range when taking out a home loan do not usually experience difficulty in paying their loan.

Lenders and bankers need to make sure that when a home is purchased and the loan is issued, that they can depend on the people borrowing the money to pay it back as scheduled. Therefore, they need to enforce guidelines and requirements in order to issue a loan for a home. Credit scores, income and debt to income ratio are all factors that they take into consideration when looking to approve someone for a loan. In some cases they are able to work with people who do not have perfect credit and may require another person to guarantee the loan for them, or request additional collateral be included in the loan to secure it. The interest rates may also be higher for those who did not score as well in the approval process.

When people are considering buying a home, the best way to avoid having foreclosures and losing the home by having to turn it back over to the bank is to make sure that they have enough income to cover additional expenses that can occur with owning a home. Having an extra savings fund or other assets that can be used if necessary also help secure that they will be able to make the monthly payments. Everyone wants to have a nice home and not worry about losing it because of the market conditions or the rising costs of owning a home, so one of the best ways to feel secure is to only take out a loan for as much as a person can comfortably afford to pay and will not leave them short every month for other expenses.