With the recent change in qualifying rules, there’s been a lot of lamenting about the “good old days” of mortgage financing , before 2008. Lots of the claims made are only partially true, at best, and have been written I suspect, by people who were not working in the field before 2008.
Lets look at three of the claims and clarify;
There was 100% financing available.
True, but only available for about eight months, by my recollection.
The government, realizing it had gone a step too far, removed this option as suddenly as it had provided the option.
There were 40 year amortizations.
True but again, only for a limited period of time.
Note also that most lenders still qualified you on a 25 year amortization, so if you couldn’t afford it at 25 years, you weren’t getting the 40 year amortization.
No limit set to your GDS (gross debt service) if your credit was strong enough.
True there was no government imposed limit but….
A credit principle common to most lenders is that you should spend no more than one third of your income on shelter payments. If you don’t have the income, then you need to have some form of cash ( mostly investments ) to back it up. What lender in their right mind is going to support a GDS of 50% if there isn’t evidence that you can somehow meet your obligations?
Because of economic change, both acceleration and slowdown, the products and services available to consumers will change, constantly. What seems like a good idea at the time may be errr, completely wrong headed. By way of an example, the government offered financing in the late ’70s and early ’80s in what was called a Graduated Payment Mortgage. Simply put, the payments on this 5% down mortgage were less than Principal and Interest for the first five years of the mortgage. Over the period they were offered rates rose to 21% ( thats mortgage rate by the way). What seemed like a good idea at the time…
While I recognize the rule changes add some new challenges, its important to know we can be optimistic about our future home buying. Here’s three reasons to think we’re living in the “good old days” now;
a) We have the lowest Mortgage rates, ever.
b) In spite of the recent changes, we have some of the most flexible, comprehensive mortgage financing options in the world.
c) As a society, we believe that each person has a right to housing and our government recognizes and fosters that right.
As always if you have any questions or just want to chat, give me a call.