How the Crunch on Credit is Bad for First Time Buyers

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In the past, banks loved first time buyers, who would take out their first house mortgage and then come back again and again for services and new mortgages, which meant a lot in profits for the bank. Now, first time buyers are being seen as less important because their finances are less stable and they pose a bigger risk to banks. You may ask yourself how first time buyers are getting hit by the credit crunch exactly.

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.

So what does this mean if you already have a first time buyer mortgage? Well, the good news is you don't have to worry if you are sitting pretty with a good interest rate or any other special deal in your home. The results of the credit crunch are going to happen in the future, and people who want to buy their first house now are probably not going to get the same good deals that you did. What they are going to be able to expect is to have to pay more for a down payment, or if they do get a low down payment like five or ten percent, they are going to have to pay a whole lot more in mortgage insurance to cover the risk. This is going to add a lot of money to their mortgage bills every month, making a low down payment mortgage a lot more expensive for them.

Also, you can probably expect to see fewer first time buyer deals offered by banks. Add to that the fact that mortgages are going to get more and more expensive because banks are going to be more careful with their money because of the bad economy. In the past almost anyone could get a mortgage, but in the future, you are going to need to be financially secure and do a lot more in order to secure a mortgage. This can be an advantage if you are someone who has good credit, because you are going to have to pay less for those who ruin the system by foreclosing on their homes. When someone defaults on their mortgage, a little bit of that mortgage is passed onto everyone else in the form of higher interest and fees. If your credit score is not so hot, you might not be so happy to hear about these changes.

Those looking for their first mortgage are absolutely going to be affected in a negative manner by the credit crunch. There is no changing the situation, so hopefully you already have your mortgage in place and don't have to worry about what the future holds for you.

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