The mortgage lending conspiracy
Not too long ago banks were making loans with no down payment to people with bad credit and didn’t bother to verify their income. Prices are low! Mortgages cheap! But can you qualify?
Here are some of the new guidelines:
I have a client who had the good fortune to purchase a home in Tujunga under market – he thought he would move into the house and as he didn’t own other real estate, easily qualified (with his large down payment and 800 FICO) for a loan. Problem is, when all was said and done he decided to rent the home instead. The lender ONLY asks the borrower if you INTEND to occupy and let’s face it, life often throws us curve balls and things change. He decided to lease it instead.
He and I thought he made a brilliant move, after all prices are down rates are low, with his excellent credit and money he has saved, he should be able to profit from the real estate down turn. NOT so quick. Banks apparently don’t want to lend money to borrowers with good credit like my client, so they have created all kinds of road blocks and hurdles:
His hurdle is that because his down payment was ONLY 25% and because he hasn’t owned the home for a year, for qualifying purposes the lender won’t allow ANY credit for rental income. God forbid this guy who has built his credit rating and saved his money for all of these years, catch a break. I mean really who wouldn’t want to lend money to a buyer with verifiable salaried income with 800 + FICO and a 25%- 30% down payment?
I have another client who purchased several years ago. After her initial 20% down payment she still owes more than her home’s value. As she doesn’t have any equity, she can’t refinance to take advantage of today’s lower interest rates. The lenders do not want to reward borrowers who are doing the right thing and paying back their mortgage – they want to push these honest, hard working homeowners to the point where they feel justified in not making their payments.
I thought this client could capitalize on the down market and purchase another home – larger, better. Makes sense, she has never paid a payment late, has a great salaried job. But NO because this homeowner does not have 30% equity in her home, the bank will not allow any credit to her debt to income ratio for rent on her existing home. In other words, she will need to qualify for BOTH mortgage payments in order to obtain a new loan. Doesn't matter that her FICO is also over 800, and her debts are low.
Yes, very well qualified buyers can qualify to purchase a home, but unless they are wealthy they can seldom qualify to buy another – an investment property.
Now is such an opportune time to invest in real estate but it is just too difficult for the middle class to get in the game. SO my question: Is this a banking conspiracy? But banks are regulated by the government. Freddie Mac and Fannie Mae (regulated by the government, bailed out by the government) set most of the lending guidelines.
Hardworking middle to upper middle class are being prevented from investing in real estate. But why?
Here are some of the new guidelines:
I have a client who had the good fortune to purchase a home in Tujunga under market – he thought he would move into the house and as he didn’t own other real estate, easily qualified (with his large down payment and 800 FICO) for a loan. Problem is, when all was said and done he decided to rent the home instead. The lender ONLY asks the borrower if you INTEND to occupy and let’s face it, life often throws us curve balls and things change. He decided to lease it instead.
He and I thought he made a brilliant move, after all prices are down rates are low, with his excellent credit and money he has saved, he should be able to profit from the real estate down turn. NOT so quick. Banks apparently don’t want to lend money to borrowers with good credit like my client, so they have created all kinds of road blocks and hurdles:
His hurdle is that because his down payment was ONLY 25% and because he hasn’t owned the home for a year, for qualifying purposes the lender won’t allow ANY credit for rental income. God forbid this guy who has built his credit rating and saved his money for all of these years, catch a break. I mean really who wouldn’t want to lend money to a buyer with verifiable salaried income with 800 + FICO and a 25%- 30% down payment?
I have another client who purchased several years ago. After her initial 20% down payment she still owes more than her home’s value. As she doesn’t have any equity, she can’t refinance to take advantage of today’s lower interest rates. The lenders do not want to reward borrowers who are doing the right thing and paying back their mortgage – they want to push these honest, hard working homeowners to the point where they feel justified in not making their payments.
I thought this client could capitalize on the down market and purchase another home – larger, better. Makes sense, she has never paid a payment late, has a great salaried job. But NO because this homeowner does not have 30% equity in her home, the bank will not allow any credit to her debt to income ratio for rent on her existing home. In other words, she will need to qualify for BOTH mortgage payments in order to obtain a new loan. Doesn't matter that her FICO is also over 800, and her debts are low.
Yes, very well qualified buyers can qualify to purchase a home, but unless they are wealthy they can seldom qualify to buy another – an investment property.
Now is such an opportune time to invest in real estate but it is just too difficult for the middle class to get in the game. SO my question: Is this a banking conspiracy? But banks are regulated by the government. Freddie Mac and Fannie Mae (regulated by the government, bailed out by the government) set most of the lending guidelines.
Hardworking middle to upper middle class are being prevented from investing in real estate. But why?
Comments