Are home buyers getting more conservative?
|By Dana Dratch
Forget buyer's market and seller's market: housing today is a banker's market. And borrowers are feeling the pain.
The one-two punch of a tighter mortgage environment
and tougher credit standards is forcing buyers toward more conservative home loans,
according to economists who study the mortgage industry.
buyers and homeowners who want to refinance are moving away from shorter-term
adjustable rate loans, according to the Mortgage Bankers Association.
Shorter-term adjustable-rate mortgages (anything that
reverts to an adjustable rate in less than four years), which two
years ago accounted for more than one out of every three closings,
are dropping in popularity. "Piggyback mortgages" (used
to finance all or part of a down payment) are getting pricey, pushing
buyers to pony up cash for down payments instead, says Jay Brinkmann,
vice president of research and economics for the association.
So where does that
leave the borrower who needs a more nontraditional loan? "Even if customers
want it, they may not be able to find it," says Brinkmann.
2 kinds of buyers
"Borrowers tend to fall into two camps,"
says Brinkmann. Conservative buyers "are willing to pay more now for not
having the risk of payments going up later." The rest focus almost solely
on the monthly payments, asking "what is the smallest payment that will get
me into a house," he says.
Both groups are shying away
from short-term adjustable loans, he says.
borrowers, the chance that the payment could increase beyond their comfort level
is a very real and unwelcome possibility. They prefer the certainty of a fixed-rate
15- or 30-year mortgage, Brinkmann says.
|What are the odds you'll go into foreclosure? While
everyone's money situation is different, lenders also look at the odds associated
with each type of loan. Check out your loan type for the current odds.|
|What's your foreclosure risk?|
||Prime-rate fixed-rate: 1 in
||Prime-rate ARM: 1 in 189
||FHA fixed-rate: 1 in 147
||FHA ARM: 1 in 101
||VA: 1 in 244
||Subprime fixed-rate loan:
1 in 77
||Subprime ARM: 1 in 31
buyers intent on getting the smallest possible monthly payment, adjustable rates
are no longer automatically the ideal. Payments can go up and the ability to refinance
in a few years is not a sure thing.
Homeowners who put down
2 percent to 5 percent a few years ago "are finding they can't qualify for
refinancing because they don't have enough equity," says Brinkmann.
borrowers looking for the smallest monthly payment are discovering that a fixed-rate
loan may offer them a better payment plan, especially if they won't be able to
By the spring of this year, the percentage of buyers
taking out shorter-term adjustable-rate mortgages had dropped from
36 percent to 17 percent, according to the association. As home-buying
season got into full swing in late spring and summer, the popularity
of the loans increased slightly. Currently, about one in five home
buyers signs on for a shorter-term adjustable-rate loan.
"The market is tightening up, and at the same
time, borrowers are much more cognizant that these teaser-rate mortgages are not
a free lunch," says Lawrence Yun, senior economist with the National Association