Scaling Back Mortgage Loan Expectations
When my husband and I were looking for a home last year, it was just as the subprime thing was starting to come to light. No crisis, though. Mortgage interest rates were just below 6% and it was still possible to get a home with no down payment. We have a good credit score, and resonably good income (albeit 1099 income). And as I shopped around for mortgage lenders, I got some pretty wild offers:
- Approval for $350,000, even though we worked out that we could comfortably afford a $200,000 home mortgage. (We ended up with a mortgage for $187,000.)
- An awesome teaser rate of 4.9% for five years.
- Interest-only loan, good for seven years before starting to pay on the principal.
- A 40-year mortgage on a $400,000 home, at a variable rate (set low for the first three years at 4.5%).
With craziness like that, it is no wonder that many people came to believe that they could get a bigger, more expensive home with little to no trouble.
What a difference a year can make.
We’re extremely glad we bought last year, since our fixed-rate mortgage loan, which featured a down payment, would never be approved this year. Even with our credit and a down payment, the fact that nearly all of our income comes from my freelance writing makes us seem risky in the current climate. So, while we probably would have been approved for something, we would not have been approved for the house we are in.
I think a lot of people trying to take advantage of the buyer’s market right now are having to scale back their mortgage loan expectations. Rather than getting nearly anything, some folks are having to rethink what they will get in terms of a home mortgage loan. Some people are finding that they:
- Need a larger down payment.
- Need better credit.
- Have to choose a smaller home.
- Will have to pay a higher interest rate.
As a result, some would-be buyers are considering alternatives. Some are simply saving up so that they can make a larger down payment when credit eases. Others are buying smaller homes and waiting for the market to improve, hoping they can upgrade in a few years when all of this is over.
