"I think it's going to be harder to get financing than it was two years ago—and it should be," Kroll says.
"It has gotten a bit harder to qualify, but that's good," Orange realtor Kelly Larnard says. "People are going to qualify who can afford their loans. This is the way it should always have been done."
Tighter standards are affecting homeowners and buyers in several ways. It is more difficult to qualify for loans without showing full documentation, principally tax forms. This makes it particularly hard for people who are self-employed to qualify for new home loans or refinancing.
Tighter rules for appraisals mean appraisers can no longer factor into a home's value any architectural or historical qualities it may have, which hurts owners of distinctive architectural homes.
And home-equity lines of credit and other home-improvement loans are now largely a thing of the past.
The good news is, the chaos that affected the loan-hunting process in 2008 is a thing of the past, says Nil Erdal, a broker in Santa Clara Valley. "Now everybody knows the rules," Erdal says, "so everyone is preparing themselves and there's no wasting of time."
The loan process has gotten "about five times harder than it used to be," Walnut Creek broker Heidi Slocomb says. "It's very tedious process." However, for those who qualify, "Many people today are getting houses with three to five percent down and FHA financing."
Both state and federal incentives and tax credits for first-time buyers have helped in some markets.
Even better for most buyers, the amount of a 'conforming' loan they can incur to buy a home increased in June 2009 from $417,000 to $729,950, depending on the median home price in their area. The lower amount was too low to help many buyers in California. 'Conforming' loans are those that qualify for guarantees from the quasi-governmental agencies Fannie Mae or Freddie Mac. That designation reduces the risk for the private lenders who make the loans, which means lower interest for borrowers—currently, about five percent.
Fannie and Freddie adjust their loan limits every year, so it's unclear how long this affordable financing will be available, or whether the limit will be raised or lowered. The increase is likely to be extended in some form.
People seeking higher-end homes, however, in the $2 million-plus range, have to pay larger down-payments and higher rates, because their loans don't quality for Fannie Mae for Freddie Mac guarantees, and the investor market for securities based on jumbo loans has collapsed.
The Federal Housing Administration also guarantees loans, and FHA financing is particularly useful because the down payment can be as little as 3.5 percent.
Financing changes have placed the self-employed at a particular disadvantage, says Jim Bailey, a manager of the mortgage-banking firm Magnifund Group, with offices in Murphys, California. The debt-to-income ratio that lenders demand hurts the self-employed because the 'income' they base it on is the applicant's net income—after all possible tax deductions have been taken. This can seriously undercount how much the buyer can actually afford to make in mortgage payments.
The new procedure is in stark contrast with procedures pre-collapse, when entrepreneurs could get 'no-documentation' loans simply by stating what their income was—a procedure that often worked fine but was open to abuse.
"It's unfortunate that the pendulum has swung so far to the other side that the guys who are self-employed are getting pounded," Bailey says. "One day, I think, the pendulum will swing back into the middle, but I'm not sure where the middle is." One way to get around the problem, Bailey says, is to limit your tax deductions before applying for a home loan or a refinance.
Changes in financing may also hurt modern neighborhoods by making it harder to restore properties. For years now, sophisticated buyers have been restoring their new modern homes, often spending months at it before moving in. With financing more expensive and difficult to obtain, that is becoming less common.
"You can't really get a loan on your house anymore for renovating," says Craig Terrien, a Los Angeles agent who lives in a Palmer & Krisel home in Los Angeles' Corbin Palms neighborhood.
"There are no second mortgages, or home-equity loans, or lines of credit out there. And if there are, they're very expensive," says Sam Benson, an East Bay broker and former mortgage lender.
Refinancing homes has gotten hard, Bailey says, because lenders are determining what the house is worth by looking at recent prices for nearby homes, which tend to be low because of short sales and foreclosures.