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Today's mortgages

By
Real Estate Broker/Owner with AGORA Realty #271029

When I was growing up my parents taught me to save my money.  Lessons like saving our allowance vs spending it were learned.  We were taught that you don't buy a house until you have saved enough for a down payment.  I put down 20% on my first home and all of my properties. 

So many people I know don't seem to have been taught how to budget their money. Friends of mine who are in fear of losing jobs still spend freely on gifts and entertainment while I watch my spending. 

A few years ago lenders were giving (yes, giving, as it turns out) money to everyone, regardless of credit scores.  Buyers who should never have been purchasing homes were doing so and at 100% or higher LTV!  Sellers were paying the closing costs (or they were being added into the purchase price) so these buyers had nothing to lose.  As a Real Estate agent, I was supplied approval letters from the buyers' lenders and it wasn't my job (or business) to question whether they could afford it.  (Agents are not permitted to see the income information of our buyers unless they show it to us). I advised my buyers not to spend the highest they were approved for but. ultimately, it was their decisions to make.

I remember buyers wanting higher priced homes they saw on the internet that were more than their 42% ratio (the highest % of the buyer's monthly income to use for all their bills supposedly allowed on FHA loans) and lenders stretching their ratios, sometimes to 50% (somehow) at the buyers' requests.  I anticipated that it would come back to bite the lenders in the butt...but then, so many of us were.  We sold homes because that's our job and we trust that our boss (the buyer) is responsible enough to know what they're getting into.

So here we are back to before mortgage leniency.  Gone are the Stated Income loans of the past for self-employeds.  Gone are the the very high LTVs (loan to value=percentage of the loan to the sales price).  For a while we could easily get an 80/20 loan (with the 20% loan being the downpayment for the 80% loan). New guidelines are popping up that are making it difficult, even for buyers with excellent credit, to buy a home because they don't have large amounts of liquid cash. 

It has always been very important to be pre-approved for a mortgage.  It's even moreso now that the guidelines are tighter.  It would be a great loss of time and heartbreaking to have fallen in love with a home, only to find that you're unable to purchase it because of some new stipulation.