Wednesday, August 01, 2007

CA Beach Cities: Home Loans...: It's Going to be a Bumpy Ride

I've spent a lot of time today talking with local lenders about the changing home mortgage market. It's going to get nasty out there before it gets better. Buyers who have traditional jobs with a regular paycheck and 20% down will breeze through.. everyone else may have trouble getting the loan they want to purchase a home. Underwriting rules are going back to the old days.. 10%-20% down and full document verification for most loans. If you want to do a loan using stated income you will need 20% down.

I've got clients in all price ranges. Fortunately most of them have good down payments but a few were hoping to use 5% and get an 80/15/5 loan. They still might be able to do it as they have no debt but it will be extremely hard. I noted a few brokers still pushing 100% financing but I think that's a thing of the past.

The fortunate buyers are the ones with 20% + down; especially in the $800,000-$1.5m - range in Hermosa, Redondo and El Segundo and in $1.5m -$2.5m price range in Manhattan Beach. These buyers are going to be gold as far as buying a home. Others who had been hoping to buy a beach home using an 80/10/10 with a stated income loan are going to have problems. They will have to use full documentation to get that loan and many, because of the type of jobs they have, will have a difficult time qualifying.

Buyers with less then 20% down who have to use fully documented income may not qualify for as large a loan as they would have with a stated income loan because of the ratios that will be used. In the old days the basic ratios were 28-34% of your gross income for a mortgage payment and 36%-38% of gross income to include all debt including a mortgage payment. Lots of people in the Beach Cities are in fields where they are not straight salaried employees but are either commission based or a mix of salary/commission and/ or a quarterly or yearly bonus. These people often make a lot of money but they will have a harder time obtaining financing with the tightening of lending rules. There will still be stated income loans but a buyer will need 20% down to use them.

The group that is going to have real difficulties are those who had some of the more exotic loans and had planned to refinance. Many of the options that have been open to homeowners are going to disappear. Refinancing is going to be tough as some lenders may require an 90% equity position and or occupancy of at least one year. I strongly urge anyone who needs to refinance this year to call a local lender now... there may still be a program you can get into but they won't be here long.

Don't kid yourself, the new financing rules are going to affect the potential buyer pool. The hardest hit will be those trying to purchase an entry level home. Not many first time buyers have a large downpayment. Most were counting on using loans that may no longer be available. So hang onto your hats folks because it just may be a bumpy ride..

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