Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
In many cases they end up targeting different market segments altogether.
Prospective tenants and potential buyers are actors in the same market from the landlord's perspective. Rents and property values are much like binary stars orbiting each other.
Portfolios generating income aren't and never really were viewed in the same light as earned income
As one the ~5% of self-employed people in this country, it's not viewed the same as W2 income. Lenders don't like 1099 income. Earned, unearned, doesn't matter. They don't like it. Why? I really don't know. I can see some point in looking at the source, but really it's ridiculous. They don't do it for W2 income. They just assume you have a job and you'll have it forever. No one looks at two to three years of tax returns (not that that really gives you any idea how stable someone's employment is). If unearned income is coming from something like an annuity or treasuries or municipal bonds (okay, maybe not those today quite so much)... I mean, really, is someone more likely to lose their job or the US government more likely to default on its debts. It just doesn't make much sense.
Even getting a car loan was a huge hassle for me. The only reason I bothered doing it was because they still do stated income loans for cars, which is very rare for homes. I mean, I can buy a car with cash whereas a home not so much. Maybe a condo I could if I stopped putting money into my 401k for a few years. But then what's the point? Without leverage why even bother? Once you get done looking at the opportunity and tax costs (forgone 401k contributions) of the 25% down payment lenders usually want to even consider self-employed people, renting just makes more sense to me at this point.
The credit standards to get a mortgage are still fairly tight, and with people clustering in urban areas where rates of appreciation are making it difficult for the common person to afford a mortgage, I think this is a sad development for the American dream.
People loaded with debt cannot afford the types of homes they want.
They are all over the CD location forums..starter homes with 3/4 bedrooms, min 2500 sq ft in high quality neighborhoods. That's your "starter" home description of today.
Too much debt, too high expectations, not enough income to afford it all.
The OP was talking about tight credit standards, the credit standards are not overly difficult. I just closed on a new house and while they do ask for a lot of docs it's simply not difficult and closing took 30 minutes
The process of closing IS significantly more difficult than it was six or seven years ago - even with a good credit score. There are a lot more forms, regs, documentation, etc required than there used to be.
Not saying they're not necessary - just saying the process is more difficult than it used to be.
To clarify - I didn't say that the credit standards were overly difficult.
And some closings take longer than others - for a wide variety of reasons. I've bought and sold probably 10 houses over the past twenty years - and I was a realtor for about five years. The process itself is much more complex than it used to be and is getting more complex later this year:
I think it's pretty obvious why - the cost of housing has increased while wages are stagnant. Duh.
I had no problem with banks approving me for a loan. They needed several months paystubs and proof that I was full time and not a temp (they seemed very concerned with that).
The bigger issue was approving me for enough money. They approved me for more than enough to buy a house but not for a practical house in my area - all I could afford was a significant commute that negated most of the advantages of buying vs. renting - even though rent has outpaced home values here.
I did find something within a reasonable commute distance but it took me almost a year to find it and it was a fixer upper. Move-in ready houses in my price range would get offers hours after listing. The rental market is so tight in my area (less than 1% vacancy) that anything that can be rented out is very attractive to rich investors that can pay cash.
This seems to be a national trend that affects 60-70% of the country, most of the major metros - if there are decent jobs to be had, the rental market is extremely tight and home values are way up beyond what even those good jobs are paying. For the other 30-40% of the country - mostly small town and rural America - housing is pretty easy and affordable to get but there are no good jobs.
I have a friend who moved with his wife to a small town in northeast Missouri - they were able to buy a beautiful, HUGE house for under $200K. But after 4 years and trying really hard - only 1 of the 2 could ever find a decent job at any given time. When 1 would get one, the other would be laid off or something like that. Neither of them was happy as a house husband/wife so they moved back to the city where they can't afford a house but can both get jobs.
Last edited by redguard57; 07-29-2015 at 01:05 AM..
We're becoming a nation of renters... So long as people can pay the rent, nobody seems to mind.
Even when home 'ownership' rates were high, the US was still a nation of renters. A 30 year loan, IS renting. . . . .
Renting for 30 years.
If someone needs more than 12-15 years to pay for something they 'bought', then FYI: They can't afford to buy it and the extended term is a form of renting.
when you think about it our rent stabilized tenants in our co-ops have a great deal. we offer 100k to buy their leases out so we can sell the apartments . below market rents for years and then a lump sum reward for paying below market .
Dodd-Frank took the rules of the industry and swung the pendulum as far as the could in the opposite direction; and then they just pulled their thumbs out and said " what good boys are we.". Credit standards went to the tightest seen since the 1980's. We suddenly were telling people who didn't have 2 years on the job or in their line of work that we couldn't count their 6 figure income. We went from Maxine Waters telling the House that people that couldn't qualify for a mortgage deserved homeownership to telling someone with a 3M+ retirement account that they could not get a 250K mortgage.
Combine the tightening with a mandated process to detect fraud. So now, when you provide tax returns, it's verified that is the actual return filed with the IRS. Social security numbers must be verified as belonging to the applicant. Why does your credit report show you lived on Main Street when your application says you've been at First Street for 17 years? Then there are the fraud tool reports, an actual report that predicts how likely there is fraud in the file (this will get the same outrage credit scores did when the American people found out more about them). This report is an added cost of business and many order at the time of approval (explaining why are they just now asking me to explain this).
In the past 12 months we have seen the regulators slowly unravel the threads that tightened lending. We are seeing some of the more absurd issues relax and I'm sure we will (over decades) head back the other direction. But, Dodd-Frank got passed when no one was watching and has resulted in making mortgages more expensive to the consumer at the table. I frequently wonder if we would see the low rates seen in other parts of the world, 1% - 2% if we didn't have so much expense added on. Fannie and Freddie have been so profitable, the government can't cut the cord to their cash cow, so it must loosen the guidelines or compete with private mortgages.
In fact, this very day, a Bill is being voted on to add more G-fees (government tax of sorts) to all Fannie/Freddie loans. Not for housing, not to benefit underwater mortgages, but to pay for highway improvements. So, the housing industry is trying to recover (and failing), so we are going to finance roads on those that take the plunge.
The noose around credit standards has relaxed, but we still fight this gotcha mentality when reviewing the buyer's application and the lender's performance. And, a lender's performance does not necessarily mean great customer service - in fact, it could be just the opposite. If fear is keeping anyone out of ownership, I suggest you are surrounding yourself by the wrong people and try a credit union (nonprofit, which means no stockholders, all that lovely money goes back to the borrower in the form of rate reductions). Rates are still insanely attractive and do offer a way to lock down a housing payment. Try again, it is getting better.
Cost of housing can gradually consume a greater portion of a person's income. In addition, until the mid 1970s, income rose faster than inflation by an average of 2%/yr for the prior 150 years.
I'm not saying that the cost of housing isn't constrained, but it certainly isn't constrained by the inflation rate. It can sustainably rise much faster than that.
What on Earth do you mean by "sustainable"? If it is constrained, then any significant increase is limited to the short term, mathematically. C'mon now.
(Note: Of course, localized markets can go up into the sky; this is an empirical fact and results in more and more being priced out, for instance in the West Coast metros of California, chiefly LA and SF).
As one the ~5% of self-employed people in this country, it's not viewed the same as W2 income. Lenders don't like 1099 income. Earned, unearned, doesn't matter. They don't like it. Why? I really don't know. I can see some point in looking at the source, but really it's ridiculous. They don't do it for W2 income. They just assume you have a job and you'll have it forever. No one looks at two to three years of tax returns (not that that really gives you any idea how stable someone's employment is). If unearned income is coming from something like an annuity or treasuries or municipal bonds (okay, maybe not those today quite so much)... I mean, really, is someone more likely to lose their job or the US government more likely to default on its debts. It just doesn't make much sense.
Even getting a car loan was a huge hassle for me. The only reason I bothered doing it was because they still do stated income loans for cars, which is very rare for homes. I mean, I can buy a car with cash whereas a home not so much. Maybe a condo I could if I stopped putting money into my 401k for a few years. But then what's the point? Without leverage why even bother? Once you get done looking at the opportunity and tax costs (forgone 401k contributions) of the 25% down payment lenders usually want to even consider self-employed people, renting just makes more sense to me at this point.
So your preferred asset allocation is that far above 100% stocks? Seems a lot of leverage to me. I can understand not wanting to put down 100%, but not even 25%? You may as well speculate on options or short-sell bonds if you want that much leverage.
Or just buy the condo with 25% down and not worry about it.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
