Why Do Lenders Still Offer High Risk Mortgage Loans? by Alfred Baldwin

Home costs in the untied States continue to swoop, and the noteworthy run of real estate as the'must have' investment continues. The mean cost of a new home, which only in the near past crossed the $200,000 barrier, is now $215,000. The high costs of houses haven't deterred buyers ; sales in June reached a record number of units. There's some concern in Washington about the explosive real estate market, and Fed. banking regulators issued lending rules in May that urged lenders to be more wary when making loans for home purchases. How have lenders replied to these guidelines? They have made it even easier to borrow money. It seems rather wierd for lenders to make it easier to lend money after having been warned that they've been offering loans too easily, but that's's exactly what has happened. Some banks have dropped the minimum credit report necessary to get a home loan or increased the percentage of income that might be spent on a mortgage. Others have introduced loans that need no evidence of earnings. Still others have started offering a greater variety of no-interest loans for bad credit and perilous Option ARM loans, which can actually raise the principal of a loan after a buyer makes a payment. Why are lenders easing loan limitations after being warned that they're too lenient? The first reason is competition. The market is red hot now, and because of the fluctuations in the stock market in the last five years, everyone wants to invest money in real estate. With so many people swarming to borrow money, lenders need to do as much business as possible. They also need to do more business than their competitors. By lowering qualifying standards, lenders can lend more cash. It's that straightforward. there are a few Problems with this eventuality. Some percentage of buyers will always default on their mortgages. When the standards for obtaining personal loans for people with bad credit are lowered, that % will certainly increase. While repos currently remain low, they combination of dropped standards and rising costs will certainly make a contribution to an increase. A predicted increase in interest rates would make the situation worse. the effects of these changes in lending can be felt by most anyone. If you're considering purchasing a home with a mortgage, be careful. Don't instantly presume that you'll be cosy making a $3000 house payment just as the lender tells you that you'qualify' for it. You must still leave in your own means, and the mortgage broker isn't really concerned about that. She just wants to sell the loan, and doing so may not be in your own interest. if you are going to take out a house loan, make a budget and determine how much you can comfortably pay every month. That figure will undoubtedly be less than what your broker is willing to give. Stick with your own figure, and do not let the fever of the marketplace sway you. Of course , you're the one who has to make the payment every month.