Those easy-money days are history.
As the mortgage meltdown has spread, lenders are demanding stellar credit and proof of income. Zero-down payment mortgages have just about disappeared.
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Which means that if you plan to buy a home in the next few months, you'll need to put money on the table.
The Federal Housing Administration offers a 3 percent down-payment loan for low-income and first-time buyers. (WOW)
Be warned: FHA loan limits haven't kept up with home prices in some high-cost areas.
For a private loan, expect to put down at least 5 percent, and that's assuming you have good credit. If you want to avoid private mortgage insurance, which will increase your monthly payments, you'll need to put down 20 percent.
If you live in a high-cost area, a good-size down payment could help you avoid borrowing more than $417,000.
Why is that important? Because loans that exceed $417,000, known as jumbo loans, are suddenly about as popular as a wet dog at an outdoor wedding.
Investors, fearful that the collapse of the subprime market will spread, are reluctant to buy loans that mortgage investment giants Fannie Mae and Freddie Mac won't buy. That includes jumbo loans. So lenders are charging higher rates for jumbos or aren't offering them at all.
The good news: Home prices have fallen in many parts of the country and real-estate analysts aren't expecting a turnaround anytime soon. That means you have time to save up for a down payment - and probably will be able to buy more house for your money.
You should invest savings someplace safe, to be ready to buy a house when the time is right for you. No need to stuff money in your mattress.
Here are several options:
• Certificates of deposit. CDs are the best choice if you plan to buy a home in six months to a year, says Greg McBride, senior financial analyst at Bankrate.com. CDs lock in an interest rate that matches your time horizon, he says.
The average rate for a six-month CD is 3.55 percent, while the average for a one-year CD is 3.76 percent, according to Bankrate.com's weekly survey. You can do better than that. Some banks are offering more than 5 percent on six-month and one-year CDs.
Some of the best CD rates are available from financial institutions that have been hit hard by the mortgage meltdown. For example, Countrywide Bank, an affiliate of mortgage lender Countrywide Financial, is offering 5.65 percent on a one-year CD, says Pierre Habis, managing director for Countrywide Bank. Minimum deposit is $10,000, and the account must be opened via Internet.
Last week, Countrywide said it planned to tap its $11.5 billion credit line to buttress its troubled mortgage business.
Entrusting your savings to a financial institution with mortgage problems may give you pause, but remember: Bank CDs are insured by the Federal Deposit Insurance Corp. up to $100,000.
To find out whether a bank is covered by FDIC, go to www.fdic.gov.
• Credit unions. Credit unions don't advertise much, and you have to be a member to use their products and services. Do a little research to find good rates on credit-union share certificates, similar to CDs.
Deposits at federally insured credit unions are insured by the National Credit Union Administration up to $100,000. Many credit unions offer 5 percent or more on six-month and one-year share certificates. And many have low minimum requirements, $1,000 or less.
Some companies sponsor credit unions for employees. Other credit unions serve neighborhoods, church congregations and fraternal organizations.
The Credit Union National Association provides a search tool at www.cuna.org.
• High-yield savings accounts. These accounts, usually through online banks, are paying rates of 5 percent to 5.3 percent, compared with less than 1 percent for traditional passbook savings accounts. If the bank is insured by FDIC, there's no risk you'll lose money. You can search for high-yield accounts at www.bankrate.com.
