Has the lending industry gone too far?
Okay, I have a buyer that is an ASU student looking to purchase a condo close to school. Now I know this is not a slam dunk deal, because he doesn't have any credit or rental history. However, he is employed. To make matters easier, his parents are co-signing on the loan, and they have great credit and a mortgage history. To top things off, my buyer's parents have enough money to pay cash for the condo if they wanted, but they are trying to help their son purchase his first home. My borrower is also putting 25% down on a condo listed under $85,000. Loan amount $60,000.
The problem is, no lender will touch this loan. The reason the loan can't go conventional is because of my buyer's lack of credit and no history of home/rental payments, even though the co-signers do. So, FHA doesn't want to do the loan because of the high percentage of investor owned condo's in the complex.
This is not the first time buyer's have had difficulty purchasing condo's. The requirement of the complex to have at least 51% owner occupied makes the only way to buy any of these is by paying cash. Let it be known that this is a college town, and there are condo's all around ASU that are listed for sale, but not selling. Problem is, nobody can buy them.
Furthermore, I have a friend in California that is wanting to refinance because his loan has just went to an adjustable rate from a 5 year interest only fixed. They have excellent credit (last time was over 800), and they also have a very substantial savings account. Their problem is he owns his own business, and cannot verify income, although he makes more than enough. All they want to do is refinance so they can go to a 30-year fixed, no cash out or anything.
Why is it that we have all these new bailout programs for homeowners who over-extended themselves (bought what they couldn't afford), financed 100% of their purchase, or took out a second mortgage to buy new cars, boats, take exuberant vacations, etc? Yet, we can't help an honest young man purchase his first condo, and we can't help a hard working entrepreneur refinance their loan into a 30-year fixed?
Has the lending industry has gone too far in the opposite direction, making it too difficult for buyers today.
What do you think?
Open Mortgage, LLC NMLS # 2975 - Downey, CA
(562)743-6086
They apparently know something about the furture that we don't know. Like what's going to happen to property values when all them foreclosures hit the market. Or about how many people who have a job today, might soon be jobless.
Sep 29, 2009 06:31 PM
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Troy Erickson AZ Realt...
Chandler, AZ
HomeSmart - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor
Gregg - My concern is that if nobody can purchase all the current foreclosures, how will the market ever change. Aren't the lenders hurting themselves by holding on to these homes and not selling them? They obviously didn't see the future when they were giving 100% financing to people who were unemployed back in 2004-2006. There has to be a happy medium for a strong market.
Sep 29, 2009 08:42 PM
Allen Tate Realtors Chapel Hill, NC 919-819-8199 - Chapel Hill, NC
Realtor - 100K Hours of NC Real Estate Experience
I hear you! Chapel Hill is also a university town and we have lots of similar buyers! This is beginning to resemble what we saw in the 80's regarding condos. Here is what I see in your case:
- You are correct about the "condo" being an issue - Lenders don't like condos. They have a title to the condo with no deed to the land - you are buying "airspace."
- Lenders have an attitude about loans under $100,000 - $60,000 is way under. They don't want to waste their time.
- With a condo project that is mostly investor owned, the risk of default by investors is considered more risky...they will walk away from an investment property before they will walk away from a primary home.
- Try a Credit Union if the buyer is a member or immediate family member of someone who is.
- You can also try owner financing...the one caveat is that the owner probably has a higher interest rate than what is available today and the buyer will want something lower like what is available today.
- Last resort: his parents buy the home outright and they set up a regular payment plan through an institution. This will not give him a credit history but will establish his ability to make regular payments. In the mean time he should go get a credit card with a $500 limit, use it and pay it off every month. This will give him credit.
As for your friend in CA? It is what it is...at least for the time being!
Oct 04, 2009 04:07 AM
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Troy Erickson AZ Realt...
Chandler, AZ
Uxbridge, ON
Trusted For Experience - Respected For Results
Troy - as in all things the pendulum swings from side to side sometimes it just swings to far ... my concern is the cause of the pendulum swinging too far as Gregg mentioned.
Oct 07, 2009 01:39 AM
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Troy Erickson AZ Realt...
Chandler, AZ
HomeSmart - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor
Sarah - Thanks for the advice. Many of these condos for sale are lender owned right now. So, owner financing is out of the question. I just don't understand how these banks think they are going to sell these properties.
Kathy - I think Gregg is giving the banks way too much credit. If they could predict the future, I don't think there would be almost 100 of them going out of business over the last couple of years. Banks would have never lended the way they did in 2004 - 2006 if they knew what they were doing.
Oct 07, 2009 04:09 AM
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