Tighter Credit Standards Drive Out First-Time Buyers

Rising interest rates and tightening credit standards are making it more difficult for first-time home buyers to get their foot in the door.

"I'm turning away 50 percent of my first-time home buyers. They just can't qualify," says Stephanie Gagnon, a senior loan officer at First Capital Mortgage in San Diego.

A year ago Gagnon would have had no trouble getting these buyers into a mortgage, but today, lenders have shut down programs accommodating buyers with weak credit ratings. The demise of these programs has also made it more difficult for buyers with brief credit histories or large debts, including student and car loans to find mortgages.

As a result, the growth in "new households" — first-time buyers or first-time renters — has plunged 70 percent from last year's rate, according to statistics from the NATIONAL ASSOCIATION OF REALTORS®.

"The decrease in sales at the lower end of the market has been kind of a surprise," says Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors in Miami. "That's usually where we have the greatest number of buyers."

Source: USA Today, Noelle Knox (07/17/07)