In credit crunch, location matters

You've heard about how the credit crunch has made it harder for many types of buyers to afford a home or qualify for a mortgage.

First-time buyers. Those moving up to larger homes. Buyers with marred credit or little cash for down payments. Those in pricey areas who need "jumbo" loans exceeding $417,000.

"If you're going to get a loan today, in comparison to six months ago, you'll have to bring more money down, better documentation and better credit characteristics to get the same terms," says Doug Duncan, chief economist of the Mortgage Bankers Association.

But here's what you might not realize: The impact isn't the same everywhere. It all depends on where you live.

A crackdown on subprime loans - higher-rate loans to buyers with poor credit - is hitting people especially hard in places such as Riverside, Calif., and Miami, where buyers rely heavily on such products. In those cities, about one-in-five outstanding loans are subprime, compared with one in nearly seven loans nationwide, says First American LoanPerformance, an analysis firm.

Meanwhile, buyers with jumbo loans are getting slammed with higher rates. In costly areas - think New York, Los Angeles, San Francisco - many buyers with such loans are suffering.

In the six weeks that ended Sept. 5, the average jumbo rate rose to 7.38 percent from 7.03 percent, even as rates on loans below $417,000 fell to 6.5 percent from 6.75 percent, Bankrate.com says. Jumbo rates fell to 7.2 percent last week.

The credit crunch is likely to wreak the most havoc in California, Nevada, Florida, Hawaii, Arizona and New York, because relatively high home prices there have led many buyers to subprime, no-documentation or jumbo loans, says Thomas Lawler of Lawler Economic & Housing Consulting.

But in lower-cost areas such as Des Moines; Lincoln, Neb.; Sioux Falls, S.D.; and Bismarck, N.D., the mood is, "What credit crunch?"

States such as North Dakota and South Dakota, with less exposure to such loans, are barely feeling the pinch of stricter lending rules, according to Lawler's Mortgage Index of Pain, which gauges the effect of tightening credit. The index is based on the idea that the more a state's residents rely on non-traditional loans - and to a lesser extent, jumbo loans - the more severe its likely fall in sales and prices.

Not many folks in Sioux Falls (median home price: $142,300), for example, need jumbo or no-down-payment loans. Only 1 percent of all loans there are jumbos, First American LoanPerformance says.

Here's a look at how the credit crunch is affecting buyers in metro areas across the United States:

New York

- Big down payments

Harold McKoy began house shopping in Yonkers, N.Y., two months ago. He quickly learned that easy credit is history.

Unlike in many other parts of the nation, high demand for real estate in much of the New York City area is propping up housing prices, making it especially difficult for first-time buyers such as McKoy.

"I've heard that you need a preapproval (for a loan) before some agents will even show you the house," McKoy, 37, said after touring a bungalow one recent Sunday with his girlfriend and his two sons.

McKoy is preapproved for a loan but knows that won't save him if the lender changes its terms. He's heard some lenders are demanding larger down payments at the last minute. "I'm not so much worried about getting a loan," he says. "I'm concerned about ... whether it'll be enough to get the house I want."

John Piazza, a broker in Yorktown Heights, N.Y., says, "In many cases now, (when a deal) has gone close to closing, the bank has pulled out and said, 'We don't have that program,' or they ask you to put more money down."

Peter Pellegri of Peekskill, N.Y., blames the credit crunch, in part, for losing out on a house a few weeks ago. He and his wife, LuAnn, had been preapproved for a loan. But it required that they first sell their condo - a task that's become harder in a sputtering market.

"Four years ago, when we bought our condo," Pellegri recalls, "we didn't need a mortgage commitment, just a preapproval."

In West Harrison, N.Y., Liz Weber, who had rented an apartment for six years, decided in April to buy a house. She was preapproved for a no-money-down loan. She soon found a fixer-upper in Danbury, Conn., a tad more than an hour's commute from Manhattan.

Then lenders began pulling back on no-money-down loans, which first-time buyers like her have relied on to afford a house in the New York area. She feared her own deal would fall through.

"Buying your first home is very scary, but knowing your loan may not exist by the time you close is a whole different level of fear," says Weber, 35. "Up until the moment I got the key, I was nervous."

San Francisco

- The hunt for bargains

The frenzied bidding that made the San Francisco area one of the nation's most expensive real estate markets has waned, but demand remains high as professionals and technology workers hunt for houses. Many, though, are seeking lower-priced homes, borrowing cash from family or waiting and hoping that interest rates will fall.

The mortgage crunch is squeezing Jeff King, a homeowner and general contractor in San Francisco. King and his wife, Margot Beall, were among dozens of families who flocked to open houses recently in the Richmond District suburb of San Francisco, a short drive from the Golden Gate Bridge.

They own a three-bedroom home in the neighborhood, but they want a bigger house as their two preschool-age kids grow up.

King says he's "very nervous" about the financial climate. He has an adjustable-rate loan at 5.25 percent that will jump to a higher rate in two or three years and jack up his payments. "I wish we had gotten a 30-year, fixed-rate mortgage," says King, a remodeling contractor.

At the same time, higher rates on jumbo loans will make it tougher to afford a larger home in a neighborhood where three- and four-bedroom houses range from $1 million to $2 million. "We may need to stay put," King says.

Rhoda Wynn, 33, a surgeon, moved to Silicon Valley two years ago and rents an apartment. She's been house hunting for three months and has seen town houses for $600,000 to $1 million. Wynn can't afford a big down payment, and the higher jumbo rates would swell her loan payments.

Two lenders have preapproved her for a jumbo and a smaller, second loan that would get her a town house for about $700,000.

"The increase in interest rates obviously erodes your buying power," she says. "I'm discouraged by the mortgage situation, but I hope it thins the ranks of buyers and reduces the competition."

Central Florida coast

- Trying to avoid a jumbo

In Satellite Beach, Fla., Michael and Debra Chapon are trying to take advantage of a slow real estate market to get a good deal. They're targeting modest homes on canals priced at $400,000 to $600,000.

They've spotted potentially good deals in the Waterway Estates area on the barrier island, where sailboat masts poke up behind single-story pastel homes. From his home office in a rental house, Michael Chapon is plotting how to bargain with a seller to avoid having to get a jumbo loan of more than $417,000.

"There's a lot of stuff listed in the $500s that really should be down in the $300s," says Chapon, 48. "We would prefer to be in something sooner rather than later, but we can afford to wait."

For the Chapons, soaring costs for hurricane insurance and property taxes are a particular concern. "You get into the $500,000 range, and you get a $8,000-to-$10,000-a-year insurance bill and a $8,000-to-$10,000 tax bill before you even pay the loan," says Chapon, a supervisor for a general contractor.

Fortunately, he says, Florida's home (and mortgage) market has been so slow lately that some banks seem eager to write loans. Lenders in central Florida are advertising 30-year jumbo-loan rates of 6.5 percent to 7.85 percent, compared with 30-year conventional mortgages with rates of 5.95 percent to 6.55 percent.

Sioux Falls, S.D.

- What crunch?

Sioux Falls, a city of 148,000 with median household income of less than $60,000, is among the many small and midsize markets across the nation that are smiling with relative contentment these days.

They were never that swept up by the real estate boom, and they aren't squeezed much by the credit crunch now. Real estate pros in Sioux Falls point to a stable, low-cost housing market where buyers tend to stay within their means.

Subprime loans? Jumbo mortgages? Not very common in Sioux Falls. "We're not like Phoenix or Las Vegas or San Diego," says Jay Zea, a Sioux Falls real estate broker. "Those places are where the housing went berserk, and the appreciation went wild, and then there were job losses and foreclosures.

"In cities like Sioux Falls, if borrowers have decent credit and a standard down payment, they're not having any problem."

When Ryan Karst and his wife, Kara, began hunting for their first home in nearby Tea, S.D., "We knew what our limits were," says Ryan, 25, an insurance agent. For the $150,000 house they bought in January, the Karsts got a 30-year, fixed-rate loan without denting their budget. "It's nice being in a market that doesn't fluctuate with the rest of the country," Ryan says.

In Sioux Falls, Zea says, "There's only a (credit) crackdown if people don't have any cash" and try to buy the priciest home in town. Then, "You might have a problem."

Washington, D.C., area

- Lenders changing terms

The federal government's stable employment and higher incomes have somewhat cushioned the effects of the mortgage crunch on the Washington, D.C., area. Still, tightened lending standards have especially hit the region's large immigrant and minority communities.

Guadalupe Romero, 35, figured falling home values in the Washington, D.C., area would let her realize her dream of owning a home. She has been renting since arriving from El Salvador 17 years ago.

But soon after finding a $290,000 town house in Woodbridge, Va., Romero, a dental assistant, faced a tightening mortgage market. Romero and her boyfriend, Jose Escolero, have solid credit scores but can't afford much of a down payment or high loan payments.

Last month, their lender told them they qualified for a no-down-payment, interest-only loan. Days later, the lender wanted an extra $400 a month to be paid toward the loan's principal. "That's something I cannot afford," Romero says.

Another lender will let her pay interest only - with a 5 percent down payment. "There's no way I can get $15,000," Romero says. For now, she and her family, including her son Jorge, 9, are living with her sister, their dream on hold.

On Capitol Hill, Terry Heubert, 31, and his fiancee wanted to move from his tiny condo and buy a $639,000 town house. With condo values depressed, they decided to keep the unit and rent it out. But they needed a no-down-payment jumbo loan to get the town house.

They thought they had one until the rate on jumbos rose from 6.8 percent to beyond 8 percent within two days last month. The couple no longer could afford the mortgage.

Heubert's broker persuaded the couple to kick in a 5 percent down payment, which qualified them for a jumbo rate of 6.5 percent. To come up with it, Heubert refinanced the loan on his condo and drew out the equity. Refinancing that loan at a higher rate raised Heubert's payment by $300 a month. "We were kicking ourselves, thinking, 'That's $300 more a month we could have had in our pocket,' " he says.

Los Angeles area

- More tight restrictions

Like Romero, Rocky Keever of Los Angeles was dinged by the credit crunch when a lender suddenly changed a loan's rules.

In mid-April, Keever and his wife, Hannah, decided to rent out his condo and buy a $990,000 loft. Ten days before the deal was to close, he says, the lender changed the terms. It would no longer let him buy the loft without selling the condo first. With the loft's builder unwilling to wait, the deal fizzled. "They (had) approved me 100 percent," says Keever, 27. "It fell apart because they tightened restrictions."

Now, he and Hannah have decided to stay put. "I got caught in the credit crunch," Keever says.