This will increase financing costs, mandate larger initial down payments for some buyers, and make monthly payments on some loans more expensive. Subsequently, the cost of home ownership has increased in our area. The full extent or length of this trend is unknown. Our housing inventory is still limited by our geographical boundaries, so how this will effect home prices remains to be seen.
Lenders are quickly closing the door to borrowers with low credit scores, small down payments for a new home or little equity in their current homes. Homeowners and buyers in high-cost areas such as California, Florida and the Northeast are also reeling as lenders chop "jumbo loan" programs.
"The market for virtually any loans with the slightest element of risk has effectively disappeared," John Bollman, an executive vice president at Cleveland-based National City Mortgage, wrote to his employees.
Tip for Home Sellers: Make certain your real estate agent is equipped with the latest information on lending requirements and is assertive in asking the right questions of your perspective Buyer. Dated pre-approval letters may not meet the latest lender standards and no-doc, or low-doc loans may no longer be possible. A sizable down payment is now an even more valuable consideration in evaluating a purchase contract.
Tip for Home Buyers: Now more than ever, an experienced loan broker can help match your strengths to the best available loan program. Be wary of online lenders, especially if you do not have a local broker available to answer questions. A reliable real estate agent is also a must in the current climate. In a changing market reputable advisers are the best protection for your investment. See our post on fixing your credit score.