BUYING A HOUSE; KEEPING THE HOUSE
( Generally takes two types of loans )
The mortgage industry is certainly not new but it has been changed, and not necessarily to make it easier for borrowers. In my opinion too many politicians without much experience
have tried to make over the industry and haven’t come close to making it one iota better.
They have changed the requirements that are needed for the borrower to qualify for the loan.
If they do what is asked of them and meet the new qualifications they will easily get the loan but can just as easily lose the house if the economy weakens and works against the borrower.
Here is the problem: the requirements are upside down. There are 4 requirements and the
two top ones are the most important. The lenders want to see good earnings from the borrower(s) and secondly good credit.
I want to see a lower (60% or less) loan to value when the loan is approved and sufficient
reserves for 18 months of total obligations in the bank, or in other liquid investments. I am
sure that my way should be the one and only way, especially after seeing the damage from the last recession that way to many borrowers sustained.
In the recession not only did high paid employees lose their job, but many large companies close their doors for good and all of the workers lost their job. Being the store manager with a healthy salary and pension didn’t save these people from losing their houses and other
possessions because they felt they were well protected. They were, until everything went
down the drain.
If you have a low loan to value and trouble comes there are private lenders that will give you
loans if there is a way to pay the loan back. They will do this because there is plenty of equity so the lender can recoup the loan. The fact that you have good liquid asset reserves
is also a protection that unfortunately, most borrowers do not have.
The answer to the banks is do it their way but take a quick pay back of the loan. You should
take a 15 year loan or less. This will build you sufficient loan to value to help you through
hard times. If you don’t do that you should take a very low payment on a variable loan and
keep the payment low so you can put money into the bank for a crisis. I prefer the 15 year loan but if you can’t make it work do the other.
Once you realize that your equity and your money in the bank is better than anything else
you are ready for either of the requirements. Don’t ever quit putting away money and
improving your property to get a higher loan to value.
There is nothing better!