Good-Bad News For Today’s Home Buyers

May 4, 2008

Many homebuyers, particularly first-time buyers, are very happy to see home prices dropping in their local market. However, they now face tougher requirements in finding mortgage financing for their newly purchased residence. Mortgage interest rates have been generally rising, with occasional downward dips as was recently experienced. But they are still very low, compared with past years. That’s the good news. But most lenders are now requiring larger down payments and higher credit scores before accepting an application. They don’t want to be burned again with more foreclosures.

During the period from July, 2006, to June, 2007, about 45 percent of first-time homebuyers opted for 100 percent financing of their new home, according to a report from the National Association of Realtors. The median percentage that first-time buyers financed was 98 percent of the home’s price. Today’s borrowers have to verify their income and their financial assets to lenders in most cases. There are very few lenders who accept no-documentation or low-doc mortgage applications, it was noted by Frank Nothaft, chief economist for Freddie Mac, a major government-sponsored buyer of mortgages.

"The FICO credit score of 660 to 680 is now the minimum most lenders will consider to prove a borrower’s creditworthiness," Nothaft said. Some industry leaders now say that a five percent downpayment on a home purchase is normally the minimum amount required in today’s market. "First-time homebuyers in many markets will soon need even more money for a downpayment - maybe a minimum of 10 percent," said Guy Cecala, publisher of Inside Mortgage Finance. "And I think before too long we’re going to see the required downpayment up to 15 to 20 percent."

Posted in Lending, Real Estate