Long Beach Real Estate-Long Beach Condos

Anybody who knows me will know that I ask that question a lot when it comes to getting borrowers approved for loans.  The second C of underwriting, capacity, from the Three Cs of Underwriting, is fast overtaking the first C, credit, as the preeminent qualification for mortgage approvals.  Heres the reason why:

Stated Income loans, once a favorite of the self-employed and commissioned borrowers have been frightfully abused in the past 3-4 years.  It used to be that these loans required above average credit and a loan-to-value of no greater than 80% (meaning 20% downpayment).  Wall Street, in its infinite hunger for yield, started offering to securitize loans for high credit borrowers. 

Today, the questions from borrowers are, "Can I get approved" rather than "Can I afford it?"   I have taken the loan application process a bit farther with these borrowers by asking them, "OK, how are you really going to make the payment?"  Sometimes, they have a girlfriend/spouse/roomate who will be contributing but doesnt want to be on the loan.  That makes good sense.  Let me give you a good and bad example of this phenomenon:

BAD BORROWING PRACTICE:

1- Borrower in Colorado told me today that he wants to buy a home for $300,000 with no money down.  Hes self-employed but really hasnt been on his own for two years.  His company has been established for three years but he hasnt gone "full-time" until 6 months ago.  His payment was going to be $2,100 and he had another $1,000 in monthly bills.  To approve him, I said that he would have to make about $7,000/month.  He admitted that he had deposits to his business account of about $3,000 a month for the past 6 months.  he didnt have a miraculous "contract" coming.  He just wants a home.  This one doesnt make any sense.  He cant afford it.

GOOD BORROWING PRACTICE

2- Borrower in San Diego applied for a loan last week.  Virtualy the same scenario but her payment is going to be about twice the Coloradans; $6,000.  I advised her that she would need about $14,000/month.  Her deposits were about $5,000/month.  Shed be "upside down"!  Alas, her new husband, who suffered a bankruptcy a year ago, makes $10,000/month at a car dealership.  Hes had the job for 1 month now.  Here is a scenario that makes sense, they really can afford the monthly payment.

Desire is not the only qualification for a home. In this market, it makes sense to be prudent, not reckless by understanding your capacity to make the payment.

Feel free to call me at (800)-977-8923 Ext 2318 with questions.