I called a client today who is scheduled to close in September on an investment property - this is his first time buying real estate as an investment. He's working on the mortgage application given to him by the bank and while we were talking through some of the documentation they require, he remarked at how much information they are asking for. Thinking out loud, he followed that up with saying "Well, I guess if banks had done this in the first place we might not be in this mess."
He's right. We all complain from time to time about how tough it is to close a deal these days, but maybe it should be. Buying a home is the largest investment most people will make in their lifetime. Aside from the mortgage, there are the additional expenses of taxes, mortgage insurance, home owners association fees, utilities, repairs, insurance and maintenance. Is it so crazy for lenders to make sure that the borrower can actually pay that loan back?
As Realtors, we should be on board with this concept. These new practices are good for business. Many homeowners facing foreclosure won't be returning to the housing market any time soon. Foreclosures and short sales have taken them out of the game for at least 3 years due to their financial situation and damaged credit report. Aside from their ability to buy another home, many homeowners will not be returning because they don't want anything to do with an industry they feel screwed them. By making sure that home buyers can afford their home, we significantly decrease the chances that they will be taken out of the market due to foreclosure.
Ultimately, tougher lending restrictions are good for consumers. Making sure that consumers can afford to pay back what they are borrowing ensures that they will be homeowners for the long run. Those facing foreclosure because they couldn't afford their mortgage payments are in a terrible situation not only financially but emotionally. Home ownership has been a corner stone of the American Dream since the 50's. Not only is it a symbol of success, but homeowners LOVE and take PRIDE their homes. They are excited to have their friends over, they celebrate holidays and make lifelong memories and traditions, they spend their free time on weekends mowing the lawn, gardening and walking around Home Depot for hours trying to find just the right faucet. The emotional toll foreclosure takes is just as great as the financial ramifications and most homeowners wouldn't be in this situation if tougher lending guidelines were in place all along.
The changes that have taken place in the lending industry may be frusterating at times, but it is a necessary correction that ultimately protects the consumer and should be welcomed by our profession.
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