Just a few years ago a home buyer could purchase a $1,000,000 home with only 10% down – or $100,000. Qualifying for a mortgage did not take much more than employment verification and a credit check. The reason? Banks and mortgage companies were practically throwing money at people because their performance was measured by volume. Some lending institutions went so far as to offer “no money down” mortgages or better known as “interest only” mortgages getting consumers into homes they could not afford.
Fast forward to 2010, post financial and mortgage crisis and banks are now requiring 25% down. Additionally, the banks are now making buyers jump through hoops to prove their financial strength which makes obtaining a mortgage almost impossible and can take months to finalize.
So if you can qualify, that same $100,000 now buys a home priced at no more than $400,000. At the same time interest rates have declined to a historical low of 4.5% on a 30 year fixed. This makes borrowing money cheaper than ever – but now buyers have to save much more money in order to qualify for obtaining that money. This is hurting the first time home buyer the most– and without them the real estate market can not be very vital.
Hopefully this overly conservative approach to lending will swing back to one that is more moderate so more people can move up and move in.