Hopefully we won’t see the collapse of the housing market like we witnessed
in 2008.  But it is possible

I’ve always been an huge advocate of creating good, quality type loans for homebuyers. With the market seemingly out of site out of mind for many first time buyers, especially with interest rates as high as they are right now, it’s no wonder we are seeing more options for first time homebuyers – but we need to be reminded of the collapse of the real estate market in 2008 and why this happened in the first place so we don’t make the same mistakes again.

One major mistake made back then was creating loan programs that made it way too easy for
someone to buy a house such as:

• Substandard Loans
• Lack of proof of verifiable income
• Bad credit

Substandard Loans

The importance of creating quality loans for homebuyers to avoid repeating past mistakes is no joke.  Back in the early 2000’s there were plenty of bad loans offered.  One major mistake was the creation of loan programs that made it too easy for individuals to buy a house, such as zero down payments.  Zero down allows someone to buy a home with ‘no skin in the game’ and these people are more likely to walk away from their obligations if the market declines.  Our Veterans have earned this privilege – and they are some of the best credit risks as well (see https://benefits.va.gov/HOMELOANS/documents/docs/VA_Buyers_Guide.pdf).  For everyone else, they need to come in with a reasonable down payment so they will appreciate their home (asset) and not run from it and the loan obligation like many did in 2008 when the market turned south.

 

Lack of Verifiable Income

Ok, I get it. There may be times when income tax returns don’t paint a picture of one’s true financial situation.  The only time I would consider using alternative income documentation (other than paystubs, W-2’s, tax returns), would be for Self Employed’s. 12-24 month business and personal bank statements should be used for this purpose.  The underwriter should not allow any exceptions.

 

Bad Credit

Bad credit typically means, bad credit risk.  Those with subpar credit are penalized with offerings of higher interest rates, as they should be. Higher down payment amounts are typical for someone with a bad credit history, as they should be.  One needs to ‘earn the right’ to buy a home with the best terms possible.

This publisher urges caution in repeating these mistakes to prevent another housing market collapse.