The problem they saw was that not only was there a high rate of defaults for sub prime mortgages, they found that the Alt-A and option ARM mortgages, which enticed borrowers with very low initial rates, are beginning to reset. This in turn causes the mortgage payments to go up, and many of the home owners to default. If you project the current default rate data over the next few years, the housing market is in for a very tough time.

Every time there is a foreclosure, the housing prices drop, and the falling prices only add to the trouble. There was a Miami condo featured in the report that originally sold in October 2006 for $2.4 million, the asking price is now $939,000. The report also cited statistics from the National Association of Realtors that state the supply of housing units on the market has grown from 2.2 million units to 4.5 million units in three years. With that much supply, and fewer people eligible to get a mortgage, the prices will drop further. It will be some time before this sorts itself out.

The first thing you need to do is figure out where your down payment is coming from. With the end of Down Payment Assistance on FHA loans that was enacted when the housing bill was passed, you are now going to be required to have a down payment of at least 3.5% on an FHA loan, 5% on a conventional loan. If you don’t have that kind of cash saved up, all hope is not lost; there are a few different programs that may help you.

First is going to be the NACA program, which is a 100% financing program that is administered by a non-profit organization. There are no closing costs, no minimum credit scores, and no private mortgage insurance, which can save you a lot of money! The negative to this program is that it will take a while to get through; you must first attend a homebuyer workshop, and then there is usually a wait of between one to two months before your appointment with a loan officer. The whole process will take at least 90 days, possibly longer, depending on your credit situation.

For those of you that already have a home picked out, there are some grant programs out there that are legitimate. The Federal Home Loan Bank (FHLB) offers a grant program for “very low- to moderate-income families and individuals.” There are also grant programs that are sponsored by HUD, which are going to be administered by city and county governments. A good place to search for one of these is at Down Payment Solutions, they have a state-by-state listings of all grants available.

The next thing you want to do is check out your credit report. Almost all loan programs are now credit score driven, so you need to know what score you have. A 580 score is going to be the minimum that is going to be accepted on an FHA loan, while a score of 680 will be required for a conventional loan, unless you have saved up a down payment of 20%; in that case, normally a 620 will do. If you have open collection accounts, the lender may require them to be paid, especially if they occurred within the past 12 months. Any judgments or liens will be required to be paid regardless of the loan program.

While it may seem to be frightening to try and get a mortgage in these times, it is definitely possible if you have prepared. With all of the incentives available now, it may be the best time ever to purchase your first home!