Anyone interested in buying a house on the Kenai Peninsula today has heard that they should expect
to find tougher mortgage lending requirements. Sometimes that can seem
arbitrary — or just plain unfair. But unfair or not, the new lending reality
is probably here to stay for a while, and the causes are understandable.
The mortgage industry learned a powerful lesson from the past, when it pretty much
gave anyone who applied a generous loan – sometimes with practically no
questions asked. But this “generosity” created financial problems for both the
banking industry and the country as a whole. It’s not hard to understand why
lending guidelines are stricter.
Reducing Loan Defaults
The overriding reason for
tougher lending policies is to reduce the number of loan defaults. In order to
qualify for a mortgage, borrowers are finding that lenders now look more
closely, may require a higher annual income, better credit score, or a larger
down payment. Their high-priority goal is preventing any foreclosure situation
where the bank owns a property it has to sell or rent itself.
Questioning Future Value
For many years, homebuyers
never questioned the investment value that seemed to automatically accompany
any piece of real estate. Buying a house was like investing in a blue chip
stock: certain to rise. The advent of a shrinking Dow Jones Average preceded
the phenomenon of ‘upside down’ homeowner equity. But in both cases, long gone
is the idea that everyone should expect to find no-brainer investment
opportunities. When buying a house can mean exposing the lender to a future
where more is owed than a house is worth, they naturally seek a safer place for
their money. Since a smaller loan or
larger down payment achieves that goal, that’s what lenders tend to offer.
Lowering Consumer Debt
During 2010, the nation’s ten largest
mortgage lenders turned down about 26% of all applications (according to the Wall Street Journal).
In many cases, that could be attributed to lowered credit scores – due
in turn to increased debts from credit cards or unpaid student loans. In fact,
those heavy debt loads are part of what got homeowners into financial trouble
and helped to fuel the housing market crisis.
In the short term, homebuyers
denied a loan can’t help but be keenly disappointed. But it can ultimately
provide time to let them raise their credit scores, increase their savings, and
get their financial affairs onto firm ground. The ultimate effect should be to
put the whole housing market there, too.
If you’re considering buying a house on the Kenai Peninsula, I’d like to help you get pre-qualified under the current mortgage
guidelines. Once you see what real values are out there and available to you, I
think you’ll be glad you called!