What does the SubPrime Crash mean for first time home buyers?
May 6th, 2010 by admin
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As far as a mortgage, tighter guidelines and more documentation.
Most likely the only thing that will change is you will have to prove your income.
This is the biggest mistake that the mortgage companies made when they did not force sub-prime buyers to prove the income that they claimed on the applications.
It means that for the foreseeable future, ALL buyers will have to work harder to maintain their credit….pay all bills on time, keep your income/debt ratios in check and just generally pay special attention to their financial business.
Even so, loans will be harder and harder to obtain except for the most credit worthy individuals.
The answer to this is more a function of your credit history and financial means. If you have a good, stable job and good credit, the sub-prime crash really won’t mean much to you.
If your credit record is dodgy, or buying a house (or in NYC, co-op/condo), you might not get the loan. Additionally, many co-op boards are very picky when it comes to financing the purchase and I wouldn’t be surprised if many of them have also upped their financial requirements as well.
I have heard rumours that the banks aren’t writing “jumbo” loans now (>$500,000), but I’ve found that to be false. Maybe some banks in some part of the country are, but those in Florida and around the NYC area don’t seem to have a problem with it. Again, I think the rumour comes from those with less-than-optimal credit.
There’s a reason it’s called sub-prime. Sub = below, prime = optimal. In the past, many of these people wouldn’t have been given loans, so yes, we shouldn’t be surprised when sub-prime loans fail or default, especially when we’re writing loans to people who can barely afford the 4% payments. Let the interest rise up to 8% on their adjustable-rate-mortgage and they’re screwed. Blame the banks & mortgage brokers for handing out ARMs to those who can’t afford rate increases. ARMs are fine if you have substantial financial means and are using this money for investments or financial management, but for those blue-collar workers who can barely afford $1200/mo for a mortgage payment, it’s a total mistake.
I just purchased a home in April and offered my mortgage broker a home based income because of the market. He told me that the market was worse than most people think. He also said that lenders were going back to the way they were in the 70′s and getting rid of subprime lending all together in the near future. Your credit score has to be above 670 in the near future plus you’ll have to have at least 5% down. Which means people won’t be able to afford the larger houses because of the strict guidelines.
Less loan sharks. Actually, it would be good for you because you can get a loan that YOU can afford. The problem with the SubPrime was so attractive many got them self into BIG houses they could NEVER afford.
Stricter income requirements.