Times are tough for first-time home buyers

July 17, 2007 at 9:47 am 1 comment

CNNmoney reported today that, although the real estate market is prime for buyers, hopeful first time home owners are struggling. With rising mortgage default statistics, qualifying for a mortgage is getting tougher and lenders are reducing the number of programs available to prospective home buyers. Lenders are now “demanding that customers produce larger down payments, more cash reserves in the bank, higher credit scores and less debt” which is making it difficult for first time home buyers to qualify. In all honesty, it’s about time.

“I could put anybody in a loan last year,” says Stephanie Gagnon, a senior loan officer at First Capital Mortgage in San Diego. But, “In the last six months, all of the big lenders are shutting down all special programs they were working with because they’ve realized it’s bitten them.”

Now, she says, “I’m turning away 50% of my first-time home buyers. They just can’t qualify.”

Is there a coincidence between the number of these special ‘programs’ and the number of mortgage defaults that have occurred and continue to do so? You bet. Consumers might not think that not qualifying for a mortgage is a good thing, but I do. Lenders and home owners have both been bitten by ‘creative’ financing programs that have added to the current state of the real estate market.

But the tighter mortgage market is not only shutting out borrowers with weak, or subprime, credit ratings. It’s also putting pressure on first-time borrowers, who sometimes share financial characteristics with subprime borrowers: meager savings, a new job and a brief credit history (which, in effect, is equal to a poor credit history). They also may have relatively large debts, such as a car loan or student loans, which can reduce the amount that a mortgage lender will give them. And just one late payment from their college days can haunt them for years…”It’s tougher for first-time buyers to save deposits and come up with the cash necessary to close” a sale.”

Many will argue that student loans are good debt, but in the end, debt is debt. And now, it’s making it harder for first time home buyers to qualify for mortgages. I’d much rather have a paid off car, no student loan payment, cash reserves and a home. But, the problem is that too many Americans want to have their cake and eat it too. They want to have the nice car, the nice things, go on nice vacations, and own a nice home.

According to late Larry Burkett, “today’s generation maintains the same standard of living that their parents do. There’s only one difference: Their parents took 20-30 years of hard work and sacrifice to get there.” If it takes a some hard work and sacrifice for first time home buyers to qualify for a mortgage, it’s not such a bad thing. Once they buy a home, they’ll actually be able to afford the payments and be a in a much better financial situation.

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Entry filed under: Real Estate and Mortgages.

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1 Comment Add your own

  • 1. Ryan  |  July 18, 2007 at 3:00 pm

    I absolutely agree. My wife and I are beginning our journey for “house shopping,” and I’m finding that the price I thought I could afford, I simply can’t. I’m glad the banks are finally realizing this, too, because the last thing I would want is to get in over my head on a mortgage payment, just because I could. I believe that I manage money well, but I still need help when it comes to those types of things – albeit the bank, my parents, wife, friends, whoever.

    I’m hoping to find a nice little house my wife and I can fix up and build up some equity. With the way the market seems to be, though, even that is hard to find.


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