For those of you who were in Real Estate during the 2006-2008 timeframe, you remember the fall-out of all the ARMs, interest only, high loan-to-value and low document style loans. When home prices go up, and applicants can’t be approved for more traditional products, we see folks turn to riskier alternatives. These products are great for savvy investors who want to use their cash for investments with a better return than real estate–but they present the average buyer with a risky proposition. Let me tell you a story about Dan and Jan…
-Dan and Jan wanted to own their first home after the got married. Yet, they really couldn’t afford a payment including principle and interest.
-They decided they could afford a 5/1 Interest Only ARM product where the first 5 years have them just pay the Interest portion of that payment
-Dan and Jan were busy with their careers, and since traditional rates really hadn’t changed much, they didn’t bother to refinance out of their original loan.
-Year 5, BAM!!!! The full payment comes into play and they can no longer afford their mortgage payment
-They struggle to sell their home because there are many other homeowners in the same situation on the market
-To get out of the home they will either have to bring cash to the table (which they don’t have) or foreclose
It’s the same story we saw ten years ago, and it’s come full circle. Clients getting into risky loan products can hurt their ability to buy up when they really need to (e.g., growing family), damage their credit or ruin them financially. I view my relationships with my clients as life-long. I don’t want them to get themselves into a situation that will bring unneeded financial turmoil to their lives and not let them live a financially robust life.
If you have clients who are considering these products, I would be happy to discuss with them what they need to do to qualify for more financially stable loans. Sometimes a few changes can make a big difference and can put our clients in a better position for long-term success.
Mortgage Loan Officer
6801 Gaylord Parkway #202
Frisco, TX 75034