Saving Up For a Mortgage Harder Than Ever

Many first-time buyers are resorting to unusual extremes to scrape together money for a down payment and qualify for a mortgage, a USA Today special report details.

A number are making life-changing sacrifices, such as raiding retirement accounts, taking second jobs and even moving back in with their parents, according to government and industry figures.

Headlines about declining home sales and home prices throughout the nation portray a buyer’s market for real estate.

For first-time buyers, though, the view is quite different. For them, the housing market is more challenging now than at any time since the early 1990s.

Rising mortgage rates have eroded almost all the financial relief that buyers might have derived from the slight decline in prices.

On top of that, most of the time, a mortgage lender is more likely to demand that customers produce larger down payments, more cash reserves in the bank, high credit scores and less debt — all of which many buyers lack, especially in high-cost states like Florida and California.

Nearly half of first-time home buyers nationally put down no money a year ago, the National Association of Realtors reports, compared with fewer than one in five repeat buyers. The remaining first-time buyers obtained home loans with a median of just 2 percent of the home price.

“I could put anybody in a loan last year,” says Stephanie Gagnon, a senior loan officer at First Capital Mortgage in San Diego. But, “In the last six months, all of the big lenders are shutting down all special programs they were working with because they’ve realized it’s bitten them.”

Now, she says, “I’m turning away 50 percent of my first-time home buyers. They just can’t qualify.”

The industry has finally returned to its senses, and responsible lending policies, because a staggering 16 percent of borrowers with subprime, or bad credit mortgage loans, were in default at the start of the year.

Dozens of home mortgage loan lenders have gone out of business since.

But the tighter mortgage market is not only shutting out borrowers with weak, or subprime, credit. It’s also putting pressure on first-time borrowers, who sometimes share financial characteristics with subprime borrowers: meager savings, a new job and a brief credit history.

They also may have relatively large debts, such as a car loan or student loans, which can reduce the amount that a mortgage lender will give them.

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