The American Dream: Low Downpayments are A Thing of the Past
As U.S. banks try to clean up the subprime mess, tougher versions of old lending rules are now being reintroduced and consumers are finding it harder to get loans.
The American dream of home ownership is moving further out of reach for people of modest means. Even affluent buyers, who took advantage the last decade's low interest rates and looser lending standards to move up to more expensive homes or to buy investment properties, are seeing their options evaporate.
The days where you could get a loan with a down payment of less than the traditional 20 percent are a thing of the past.
The clock is rolled back about 20 years," said Lou Barnes, co-owner of Colorado-based Boulder West Financial Services and publisher of Mortgage Credit News.
Such obstacles to obtaining a mortgage are among the actors keeping the depressed U.S. housing market from recovering, which in turn is having a dampening effect on the broader economy.
"You definitely need more money to buy a house than you did a few years ago," said Guy Cecala, publisher of Inside Mortgage Finance. "The days of putting no money down are gone."
Over the last decade, low interest rates, of between 5 and 6 percent, spurred a frenzy of competition and led to "exotic" loan products that made it possible for almost anyone to buy a house.
These days, lenders are balking at anything other than "plain vanilla" loans to would-be buyers with stellar credit histories, significant downpayments and income that can be verified with government tax forms.
Published on May 22, 2008
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