Why First Time Buyers are Hardest Hit by the Credit Crunch

By Kelly McMahon

First time buyers who were getting their first mortgages were traditionally the golden goose for banks because once a bank had their business they usually had it for a long time and they made a lot of money off of them. However, first time buyers are now getting to be less and less important for banks because they are traditionally more risky than buyers who have established credit. So, how are first time buyers affected by the down turn in the economy?

It is complicated to answer this question. To answer it, you have to remember what first time buyers got when the economy was booming. In the past, first time buyers were able to get a mortgage without putting down a big down payment or they got a better interest rate than traditional mortgage shoppers. When they didn't put down a large enough down payment, first time buyers found themselves in financial troubles when the economy changed for the worse. Because of the problems paying off these expensive houses often got put on the banks' shoulders, these banks are now thinking differently about what to do with first time buyers.

You may want to know what is going to happen with your current first time buyer mortgage. You don't have anything to lose sleep about if you already have your first time buyer mortgage with a good rate or other deal. It is only those who are currently looking for a mortgage that won't get the same first time buyers deals that you did. First time buyers can expect to have to purchase special insurance to cover any low-down payment deals that they get, if they are able to get them. This insurance will add to the cost of the mortgage, and take away a lot of the benefits of being a first time buyer.

With the economy going south, you can probably expect to see fewer and fewer first time buyer deals offered by banks. Mortgages are also going to be getting more and more expensive overall, because the problems in the financial world are going to cause banks to be cautious with loaning out money. Before, banks gave a mortgage to almost everyone, but now, you are going to have to prove that you have good credit and are a good financial risk for the bank. This might actually be good for those with good credit, as it is going to weed out those who buy houses that are too expensive for their budgets. Those who lose their houses ruin it for everyone because we end up paying more in mortgage interest rates and bank fees. However, if your credit rating is less than stellar, these changes might sound discouraging.

Those who are looking for their first house are going to find getting a mortgage now is more difficult due to the bad economy. There is really nothing that you can do now, so if you already have your mortgage, consider yourself among the fortunate.

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