The High Cost of Buying A Home Just Got Higher
Friday, February 29, 2008SUSIE GHARIB: Get ready to shell out more money if you're in the market for a new mortgage. Wells Fargo said today that borrowers must now make a 25 percent down payment on the purchase price of a home in markets where prices are falling. Mortgage rates are also going up, even though the Federal Reserve has been cutting interest rates. As Stephanie Dhue reports, both factors are combining to raise the cost of buying a home.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tighter lending standards are squeezing potential buyers out of the market. Realtor Mukami Mugo has seen firsthand the effects. She says many home buyers are unprepared for the higher cost of borrowing.
MUKAMI MUGO, REAL ESTATE AGENT, RE/MAX: If, let's say tomorrow's my settlement date and my loan officer says the terms or the conditions have changed, now you need to bring this much more money. Hello, you know, that's likely to kill the deal.
DHUE: Lenders are coping with rising foreclosures and falling home prices. Twenty percent down payments are quickly becoming the standard. "Inside Mortgage Finance" publisher Guy Cecala says lenders don't have confidence prices will stabilize anytime soon.
GUY CECALA, PUBLISHER, INSIDE MORTGAGE FINANCE: The lending market is discovering that home values are dropping a lot faster than they thought across the country and everybody is reacting by wanting more equity in a mortgage going forward.
DHUE: Besides Wells Fargo tightening its standards, Bank of America now requires 10 percent down in what it calls troubled markets. Depending on the market, Wachovia says it could require more than 20 percent.
CECALA: Once you've got a default and see firsthand how much it's costing you, the knee jerk reaction of course is to raise the loan-to-value ratio. Of course, it's somewhat like closing the barn door after the horse is out, because I can tell you now, all the mortgages made now are going to be pretty safe.
DHUE: FHA, the Federal Housing Administration, was once shunned as too demanding; now, it has become a savior for qualified buyers. The agency has relaxed some of its standards and in some cases, a borrower can put just 3 percent down. Mugo says that has helped as other lenders have tightened up.
MUGO: Right now, the sellers are happy to get a buyer who is FHA- qualified. The buyers are happy with FHA because they can qualify for it. They are more likely to qualify for FHA than conventional loans.
DHUE: Analysts say if tighter standards keep large numbers of potential borrowers out of the market, lenders may be forced to reconsider their terms to boost business. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
