Quote of note:
His firm's preferred lender had pre-qualified 90 potential buyers for a group of new houses. Since the houses wouldn't be ready for another six months, the builder tightened the loan criteria. He didn't want buyers to sign up for a house and then get frightened into canceling by rising rates.
He raised the threshold from a fully variable loan, the easiest to get since it immediately moves upward when rates increase, to a mortgage that was fixed for the first three years. That would shield buyers from rate jumps for at least a little while, but it's also more expensive.
Under the higher threshold, only about 15 of the buyers still qualified.
"People are really pushing to borrow as much as they can, and the lenders are right there," said the builder, who declined to be identified. "There's apparently not much of a cushion."
They're In but Not Home Free
Many Californians have 'interest-only' loans. They might be living on borrowed time.
By David Streitfeld
Times Staff Writer
April 3, 2005
OAKLAND Rachael Herron's new condo will ensure her financial salvation unless it provokes her ruin.
Herron put no money down for her tidy one-bedroom, borrowing the entire purchase price of $211,000. To keep her monthly payments as low as possible, she got an adjustable-rate mortgage that won't require her to pay any principal for three years.
Thanks to her "interest-only" loan, the 911 police dispatcher was able to afford, barely, her first home. She now has a stake in California's sizzling real estate market. As her home increases in value, she plans to use some of that equity to pay down her credit cards.
But Herron is also setting herself up for a day of reckoning: Nov. 1, 2007.
That's when she has to start paying off her loan principal. If interest rates are higher than when she bought her home last fall something many economists consider probable if not inevitable her monthly payment will increase by as much as a third.
"I don't know what I'll do," said Herron, 32. "I'm already working overtime to pay my bills."
