The stock market experienced a rough time what with Lehman Brothers’ bankruptcy and the sale of Merril Lynch resulting in a market plummet on their news.

But for the average Joe, it is not the price of stocks that worries him, but the price of houses.

Actually, the real estate market had a lot to do with the debacle in the finance and stock markets. With the easy money policies that existed, borrowers were able to borrow over their heads, and banks did not vet the loans properly because they could just market them on the secondary market. Banks were happy to lend whatever amounts homebuyers required, since they knew they could sell the loan; buyers of these securitized loans were confident that the default risk would ultimately fall on Fannie Mae. Nearly $7 trillion of new residential real estate and consumer debt was created in the beginning 6 years of this decade, according to Daniel Alpert, managing director of Westwood Capital. As a result, debt due by homeowners and consumers in general doubled from 1999 levels. This could not go on without repercussions.

This type of economic swing is bound to have an effect on every market. The IMF projects that the crisis in worldwide credit probably cost as much as $1trillion in 2008.

This spiraling crisis will have a substantial impact on the home lending market. Banking lines of credit have shrunk a great deal. Plus, consumers have to stop borrowing in other areas, now that their mortgages are threatened, which means less lending business for banks, which means reduced income.

All loans, and not just mortgages will be difficult to get. For some, this may be the best news for a while, since it may signal more normal lending practices.

But there may be a bonus for potential buyers in this crisis. Since there are not enough mortgages being granted, houses are going begging so prices will continue to go down. Tight credit also cuts out speculative buyers, who created a strong upward pressure on housing prices during the real estate upswing. For buyers who have put off their home purchases because of these inflated prices, they may still see prices coming down to their range. Especially for those who used this waiting time to build a savings account for a larger down payment and have maintained a good credit rating, they will have their pick of lenders and houses.

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Most prospective home buyers are now familiar with the concept of a lock in rate for their mortgage. If a lender gives you a 30 day lock in period, this means that whatever rate and number of points he quotes you will be good for the next 30 days, regardless of changes in the interest rate market.

Of course, if the loan does not close within this 30 day period, the agreement is no longer valid, and the lender is no longer under any obligation to lend at that rate and point combination. Sometimes this is not an issue since the loan rates have not risen in the period and may even have fallen.

A thirty day lock in period is most common, but it is not easy to find a home, negotiate a price, have a home inspection and finally close within that thirty day period. Many borrowers therefore ask for additional time for the lock in period, but they have to pay extra for this.

You have to determine if the lock in period is the right choice for your circumstances. Your views on interest rates will influence this, since if you believe they are increasing, you will want to fix a rate now. Or do you think the direction of the economy will push interest rates down?

Most times, borrowers don’t want to even think about whether rates will go up or down, they just want to stick to the rate that works for their budget and they will lock in the rate.

The lock in rate give the buyer a time pressure since most of them want to have a preapproval before they search for a home. In other words, you have to get your mortgage, with a lock in rate, before even starting your home search. That adds an additional time squeeze since you have to find the house, negotiate and close all in thirty days.

Have a pretty good idea of the type and location of home you want: this will make the shopping process easier. And of course, in today’s market, sellers are very aggressive, so negotiating should be fairly easy and smooth. Choose a home inspector in advance so you can facilitate this process as well.

If you are a borrower who is just on the border of qualifying for a loan, you should definitely opt for a lock in period to assure you the loan for at least this period. If his situation changes, he may be hit with a higher different rate.

So a lock in rate is for you if you feel rates may increase, if you don’t like to take the risk that they will, or if you are concerned you will no longer qualify for the mortgage if they do.

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