bostonbubble.com

Guest · Posted: Wed Apr 16, 2008 6:47 pm GMT Post subject: tough time to get a mortgage

My fiancee and I recently signed a P&S on a single family home on the Roslindale/West Roxbury line for about $400k, with about 8% down (a gift from my parents). Despite the fact that we have a combined income of over of $150k/year and very good credit, the process of applying for the mortgage has been hair-raising.

We haven't been rejected yet, thankfully, but the documentation they have been asking for is starting to verge on the ridiculous, such as copies of the canceled checks for every rent payment for the last year -- which we shredded a long time ago, of course. Since our landlord is an individual and not a company, his word isn't good enough, apparently.

We're experiencing the fallout of the credit crunch first hand, and based on our experience it is no wonder the Boston housing market is stalled. What good is the market going down, if first time buyers still can't get in?

In the mean time we're keeping our fingers crossed that our loan will come through...

CJ · Guest

MA housing market went down about 5-10% last year and probably will go south another 5-15%. 8% down isn't that much for today's market. If you have 20% down, I think they will be more than happy to give you the loan in just few days.

BUT why would you want to buy a house now?

Brian C · Guest

tetron · Joined: 16 Apr 2008 Posts: 1

(I'm "Guest")

Perhaps this belongs more in the "psychology" section, but --

We wanted to move out of our apartment in order to have more space, a space that would actually be ours, so we could paint the walls, change the light fixtures, not have to get quarters to do the laundry, etc. More seriously, we want to put down roots in the area and with the Boston housing market being difficult and expensive in the best of times, it seemed it was a good time to shop around since there is more choice and less competition with other buyers.

Since we really want to buy a place to live in for a few years, we're not particularly concerned about short to medium term dips in the market.

In short, we're exactly the sort of young urban professional first-time buyers that the Globe has been writing about, for whom it is supposedly a golden time to buy. Supposedly.

BK · Guest

Tetron, and other potential buyers....

I hope the delay at the bank will make you and your spouse-to-be re-consider buying.

I'm married and have a child. I understand the desire and need to put down roots. But, there are times in economies when it is a particularly bad time to buy. The current Credit Crisis just started in August of 2007 - this crisis is only 8-9 months old. The last Real Estate induced Credit Crisis last several years.

Why does a credit crisis happen? The World wakes up and realizes the Mortgages outstanding exceed the value of the homes that are the collateral for the Mortgages. This means that the value of homes will fall further until the Mortgages outstanding match the perceived value of the Real Estate. This is a world wide crisis read the Financial Times to get a better understanding that this is not a USA only problem.

Buying an asset class (like a home) when the values are falling is sometimes described as trying to catch a falling knife. Why not wait until home prices are flat totrending up for 6-9 months. There is no indication that home prices have stopped falling.

If you borrow $380,000 and the house value falls by 20% - its like losing $170,000 - its called the down side of leverage.
$380K x 20% = $76,000 (it costs $170,000 over 30 years to borrow $76,000)
A 10% loss in value will cost you $86,000 over the life of a 30 year Mortgage.

Can you afford to lose $86,000 - $170,000 is the question you need to answer?

Booba · Guest

Good! Finally it is getting back to NORMAL!
Yes, it is NORMAL when people that you asked to lend you big amount of money want to make sure you can give them their money back!

CJ · Guest

Well..... good luck to Tetron.

I am a potential buyer too, but will wait one year. I have 30% down and should be able to get a great rate, but I don't find any reason to jump into the market now. Even I should stay in Boston for few years, but money is still money.

Steverino · Guest

The bank has considered something you have not.

If house prices drop another 20%, your equity goes from 20% to 0%. If they drop any more than that, you will owe more than your house is worth.

No equity and negative equity borrowers are at radically higher risk of defaulting. Regardless of your income or credit scores. That's what banks are concerned about now.

And before you say, "I don't think houses will drop another 20%"--stop.