Mortgages
It’s Tougher to Get a Mortgage Today
By
Apr 4, 2012, 21:38

There were so many different mortgage programs to pick from. There were juicer loan options than just your standard 15 or 30-year Fixed Conventional and the 5 or 7-year Adjustable Rate Mortgage – you could get a 125% Conventional Loan or even a Negative Amortization Loan! You have heard about the Stated Income loans or “Liar’s Loans”, as they were so affectionately named. These loans allowed self-employed people, or anyone else for that matter, who had a hard time documenting their income to simply “state” their income. This loan was widely abused and was entirely too loose. There were stories of buyers asking how much money they needed to make to qualify for a certain property that they had their hearts set on, and then, by golly, that was, coincidently, how much they made per year! Whew .. that was a close call. Had they made less money they would have missed out on buying their dream home before it appreciated even more. On the other hand, there were horror stories about aggressive Loan Officers who “coached” the Buyers as to how much money they felt that they made per month. This is outright fraud!

Today it is almost impossible to find a Stated Income loan on the conventional market. This has made it much harder for a large portion of the population to buy a home.

This leaves those Buyers with only a few options … all of which should help YOU … if you are a Real Estate Investor.

Adjustable Rate Mortgages


Do you know what two of the worst things about an Adjustable Rate Mortgage (ARM) are? Interest rates can go up and life plans always change!

If homeowners had been living in their homes for fewer than 30 years and the Buyers stated that they planned on moving much sooner than that, financial experts started recommending ARMs at a tremendous pace. For some folks this worked out beautifully. They received a much lower interest rate than what could be obtained with a 30-year fixed, and they successfully sold the property before the interest rate went up or a balloon payment was due.

However, things didn’t work out so well for many others. Many families found themselves with a rising interest rate and a skyrocketing payment that they simply couldn’t afford anymore. Couple that with the fact that everyone was trying to sell their homes and the prices had fallen so far that they were under water (owing more than what a property is worth) … and you had a recipe for disaster!

It is a little too native to think that if those Buyers had purchased their homes with a 30-year fixed mortgage, perhaps they wouldn’t have lost them. I do believe, however, that it certainly would have helped those that only had to sell because of the rising interest rates. This would have taken a big chunk of foreclosures out of the equation!

Length of Homeownership

It sued to be that Buyers bought their home and perhaps raised a family in it. They most likely purchased it putting 20% down and got a 30-year Fixed Mortgage. When they passed away, they left their paid-off home to one of their children to continue the family tradition.

We are seeing very little of that these days. In fact, it seems as if the length of time that Owners stay in their homes is getting shorter and shorter by the minute!

Our society has a different mentality than that of our parents. We want to improve our surroundings. Our older generation tended to adhere to the philosophy of “if it ain’t broke, don’t fix it”. We tend to want to upgrade and replace it every few years!

I’m sure you have seen the rash of home improvement shows on television I chuckle every time I hear a Buyer walk into a home to view it. They almost always say the countertops are “dated” and need to be replaced unless they are granite! If the home has white cabinets, they want dark. If it has dark cabinets … they’re too dark! Good or bad, this new way of living is definitely different … and to be a successful real estate investor, you need to understand the Real Estate market and follow the trends.

Calling all Gamblers: In Arizona during the real estate market boom, new subdivisions were the hottest game in town. Most builders would build in phases. They would set the price of phase 1 prior to construction and then already give you the price of phase 2 … which was much higher. This was smart on their part. It provided a sense of urgency to get in on the ground floor, so to speak.