Banks protect themselves, demand more cash from home buyers

Residential buyers– particularly those in the financial industry — are facing stricter guidelines in obtaining home mortgages as banks watch financial institutions fold and fear facing the same fate.

Experts said that buyers can expect to put more money down and adhere to more rigid income examinations, with no exceptions.

“If a bank only does 75 percent financing and you want 80 percent, it’s much tougher to get that exception,” said Melissa Cohn, founder and CEO of Manhattan Mortgage Company. “Exceptions are just not being made.” Just a year ago, exceptions were actually the norm in obtaining mortgages.

The size of down payments has increased in cooperatives and condominiums.
Steve Moran, a senior loan officer at Preferred Empire Mortgage Company, said that in the past, putting down 10 percent for a condo and 20 percent for a co-op was typical in Manhattan, but that has been upped to 20 percent and 30 percent respectively.

Michael McGivney, a senior vice president at Stanley Capital, said that on a purchase of up to $1 million, 70 to 75 percent financing is typical; 65 to 70 percent is the average for purchases up to $2 million; and above that, 60 to 65 percent financing is the norm. However, for qualified buyers with money in the bank, as much as 80 percent financing can be obtained.

“Private portfolio lenders are still willing to do 80 percent financing,” McGivney said. “Buyers have to have good credit history, documented income, and one to two years worth of housing obligations in reserve at closing. It’s a tremendous opportunity for smaller regional lenders to become aggressive in the market.”

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People in the financial industry who still want to buy a home have more hoops to jump through than buyers from other industries. Banks are tightening restrictions on loans for workers from failing financial institutions, and excluding last year’s bonuses.

“Banks are starting to look at bonuses versus base salaries, especially if they work in the financial district,” Moran said. “If a borrower is with a financial institution that’s known to be having difficulties, some of the banks are cutting bank on bonus income they are willing to use.”

On Wednesday, stricter loan guidelines for Fannie Mae and Freddie Mac, which were taken over by the government last month, became effective, and Manhattan Mortgage’s Cohn said the banks will follow suit. Cohn said Fannie and Freddie aren’t likely to give mortgages to buyers in new buildings, unless the building is almost sold out, and no-income verification loans are no longer available. In addition, Fannie is imposing an extra fee for people taking out loans on or after November 1.

But the $700 billion federal bailout for the financial system gives brokers hope that the market will start to lighten up.

“We’re all hoping the rescue bill will open up the credit markets again and things will ease up,” Cohn said. “Banks are still making mortgages; you just have to be more qualified.”