Loans For First Time Home Buyers – How Difficult Is It Today?

With all of the turmoil in the housing market, you may be wondering how difficult it is in finding loans for first time home buyers. To be honest, it is more difficult today than it was in the days before the housing crisis started, but it is still possible to get a new mortgage. Here's a look.

The challenge in obtaining first time home buyers mortgages is reflected in the numbers. The number of new loans to first time buyers was just over 250,000 for the year 2008. This is down from just over 360,000 in 2007. What's behind the drop off?

Several factors are involved, including much tighter lending by banks and other financial institutions. What used to be a fairly easy process for even those with less than stellar credit, has now been restricted severely. In fact, many lenders are making very few loans for first time buyers regardless of the amount put down.

Another factor is negative equity in the market. Home values have plummeted, with some cities at a 50% drop in home values from the height of the boom. Lenders are spooked and who can really blame them? Experts can't say with any certainty that we've even hit a bottom as far as housing values. It's very easy for a borrower to walk away from a mortgage when they have no, or even thousands in negative equity in the home.

Unemployment is yet another factor in the drop off with new loans for first time home buyers. Lenders see a 10% unemployment rate and the fact that it appears it will remain at that rate, or even climb higher, for the next couple of years. They are hesitant to loan money out when you may be losing your job and can't repay the note.

So what does this all mean to you…the first time home buyer seeking a loan? It means you can expect to be required to come up with a substantially higher down payment. 5% down won't cut it today. You may be looking at 10% to as much as 25% down in some cases. This is all due to the above reasons we pointed out.

The only way around this is with a guarantor. And that can be difficult at best today. The key is to have a positive credit rating in order to have a bigger pool of lenders and financial institutions to choose from. Sub-prime lending is basically dried up today.

As with everything in the housing economy, these days will pass. Lending will become more readily available in time, as will down payment requirements. But until those days get here, it is going to be a bit of a challenge to get into that dream home you've been looking at.