75 is the new 80

There has been a lot of talk lately about the housing and credit. Most people know that their properties would appraise for less now than a year ago. But did you know that the softening market by itself changes the requirements for new loans? Wells Fargo is one of many lenders that has imposed a 5% reduction from maximum financing on ALL transactions (regardless of whether or not the property county is identified by Wells Fargo as at risk) when the appraiser identifies any of the following:

• Declining property values
• An Oversupply
• >6 months marketing time

For example, take a $700,000 primary residence purchase at 80% LTV in a market where the appraiser indicates declining property values. The LTV must be reduced to 75% as 80% is maximum financing and the appraiser has identified declining values.

So if you’re looking to take make a purchase, make sure you have enough cash to put down 25% or more, or be prepared to pay extra on a second (if available). My guess is that these new policies are going to slow down real estate transactions and make it tougher for banks to get rid of their REOs, it will encourage people who want to move to stay put for a few years, and make it hard for time home buyers.