It used to be that buying a new home was simple. You went to the bank and asked for the money. It seemed that they were practically doing back flips for first time home buyers to have the finances they needed to get into a home. Then everything changed. Now lenders have tightened up what they have set as criteria and for those who were hopeful to get into a property it became nearly impossible to get a mortgage that was not only affordable, but also did not require the 20 percent deposit.
Stricter credit scoring the new norm
In addition to this, the credit scoring that is now taking place is also much more strict for the higher Loan to Values (LTVs), which has left many applicants who would otherwise be viable candidates without assistance.
As a result the market for mortgage has slowly seen a steady increase in the lenders who are willing to offer a higher end LTV product. This has been a big help to those who are genuinely need to borrow but have small or limited deposits.
Targeting first time buyers
Although lenders are starting to give the impression that they want to give more opportunity to the first time buyer, there does seem to also be a shadow hanging over the industry. Lenders are taking heed to what has taken place in the market as a whole and are attempting to lend in a more responsible way.
To achieve both of these ends lenders have devised products that more specifically target first time buyers by giving them a jump start without the necessity of a large down payment. Through this there have been some success with needing lower amounts for deposits, smaller fees for applications, and a leniency for using funding that is family-backed. Overall this has helped to improve the number of mortgages for first time buyers.
Sales up in spite of stricter lending standards
Despite all of this in February the industry saw a 21 percent decrease in the purchasing of homes, with just below 47,000 being sold. January saw a two year high of 57,728. Although there are other factors that may have effected this number, such as a rush of first time buyers attempting to beat the March deadline, it was also a significantly lower number of first time buyers in February in comparison to January, where nearly a quarter of those sales were made by this sector.
Another factor is the tightening of the Home Ownership and Equity Protection Act (HOEPA). Although most of the significant changes will effect mortgages that are higher and include interest rates that are raised because of a poor credit or small down payment, there are new requirements that focus on the lender taking a closer look at how the borrower will be able to repay the loan. This means that there will be more scrutiny of the income to debt ratio and there is now a more diligent look at real documentation of assets and income.
Although it continues to be a challenging process, and lenders are open but are being more closely watched, lending is still happening. The market is on a slow but steady climb, and it will ultimately take borrowers working more carefully to get into a new home. Nothing appears to be off limits in regard to what lenders may ask for, so it will take true diligence on the borrowers part to ensure they and get qualified.
