Some people who flocked to lenders this week hoping to snag a cheaper mortgage following the Fannie Mae/Freddie Mac takeover got an unpleasant surprise. Although interest rates had indeed fallen, fewer buyers could take advantage. From the L.A. Times:
Although the lower interest rates make it easier to get a mortgage, many lenders this week also raised the minimum down payment they’ll allow on a loan — making it impossible for some people to qualify for a mortgage.
How tough are the new standards?
Home purchasers must put down at least 15% of the purchase price, up from 10%. And if the owner of a rental home wants to refinance it and cash out some equity, the mortgage can now be for no more than 75% of the home’s value, compared with 90% during the housing boom. “No lender wants to make a 90% loan today, because we haven’t hit the bottom yet on prices. If they keep going down it could be a 100% loan next month,” said Jeff Lazerson, president of Mortgage Grader, a Web-based loan shopping service.
Of course, 20 percent down used to be the norm for home purchases. But that was before home prices got out of reach for first-time buyers. How is any first-time buyer supposed to buy a home in Southern California?
It’s no wonder that so many people are buying homes in the High Desert and the Inland Empire, where you can get a newish place for $300,000, sometimes less. Even then, a buyer putting down 15% has to come up with $45,000, plus closing costs. That’s not easy to do.
The only ones who can are the highest-earning couples or — more likely — people who get help from their parents. The rest are doomed to a life of renting in SoCal. They probably won’t stay here long.
On the other side of the equation are the folks with homes to sell. Higher down-payment requirements are bad news for people selling lower-priced properties, such as condos, that are affordable for first-time buyers. Their market just shrank considerably.
Los Angeles must come up with some kind of affordable housing for first-time buyers. A frighteningly small percentage of people and families can come up with $75,000 down to buy the median $500,000 L.A. County house.
Right now, the city is full of move-up housing. But if there are no first-time buyers, eventually there won’t be any move-up buyers, either. The first-timers will be forced into the suburbs, where they’ll commute to work and clog up the roads even more, which is hard to fathom, because they’re already practically gridlocked.