How to crack the credit crunch

The ‘credit crunch” that hit mortgage markets in early August froze the lending system overnight.

The system had been strained all year because of leveraged loans that borrowers had stopped paying. As a result, investors that buy loans from mortgage lenders stopped buying and warehouse banks that enable mortgage lenders to fund loans stopped providing funds.

Mortgage markets are slowly improving, but your real estate agent and mortgage advisor are more critical than even in helping you make the right property decisions. Sellers should use local, full service real estate agents with the experience to understand truly qualified buyers and the ability to scrutinize every aspect of the buyer’s contract and pre-approval letter.

Buyers should also hire a “buyer’s agent” to assist with negotiating strategies and creative contract writing.

To get a loan now, you’ll need at least a 5 percent to 10 percent down payment and a good credit score.

Fortunately, great loans and rates are still available. Pay extra attention to your lender options and the experience of your mortgage advisor. A good real estate agent can explain the difference between banks, mortgage brokers and mortgage bankers, and help you make the right choice.

If you’re a buyer and think home prices are going down, negotiate the current list price now instead of waiting — by the time prices drop in San Francisco, new buyers rush in and push prices up. Also, conduct home price-versus-rate analysis with a mortgage advisor and neighborhood-level pricing analysis with a real estate agent.

This same analysis goes for sellers who need to list now and choose a price. For sellers who don’t have to sell right now, your biggest decision is your time horizon. Do you have to sell in six months, or do you have as much time as you need? Again, your real estate is the best advisor here, and a mortgage advisor can provide input on the 12 to 24 month economic projections.

Katy Dinner is a real estate agent based in San Francisco.