Tell a pre-2008 loan application story

FirstWorldProblems

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Some of the comments in willizm's thread intrigued me. I was only 20 in 2008 so I wasn't in the market for a house, but some of the stories I hear about people being offered mortgages for homes that were worth 6x (or more) their annual income just seem crazy to me.

When I bought my house in 2012 I asked them what they'd approve me for if i were applying solo (no spouse) and at ~$60k at the time with a $400/month car payment, the bank said they'd approve me for a $180k mortgage (assuming minimum 5% down). That seemed reasonable to me
 

Chet Donnelly

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In 2006 I was 23, made $50k a year, had about $10k in my bank and had not a single debt payment. I was one year out of college and lived with my parents.

I was offered a mortgage of $275k with a 3.5% down payment not even made by me, made by a government first time home buyer program. Rate would have been 6.25% for a 30 year fixed conventional. Principal and interest payment would have been just shy of $1,700 and I brought home somewhere around $3k a month (don't remember exact). They even had me come in and listen to a sales pitch on why I should go for a home in this price range because prices were going up so fast that I would be able to pull out home equity in a few years in case money got tight.

I ended up purchasing at $184k and they told me I was making a huge mistake and leaving money on the table.

I sold the place for $82k in 2012.
 

FirstWorldProblems

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In 2006 I was 23, made $50k a year, had about $10k in my bank and had not a single debt payment. I was one year out of college and lived with my parents.

I was offered a mortgage of $275k with a 3.5% down payment not even made by me, made by a government first time home buyer program. Rate would have been 6.25% for a 30 year fixed conventional. Principal and interest payment would have been just shy of $1,700 and I brought home somewhere around $3k a month (don't remember exact). They even had me come in and listen to a sales pitch on why I should go for a home in this price range because prices were going up so fast that I would be able to pull out home equity in a few years in case money got tight.

I ended up purchasing at $184k and they told me I was making a huge mistake and leaving money on the table.

I sold the place for $82k in 2012.

damn that's nuts...

[MENTION=4923]The Beast[/MENTION] and I were just having a discussion about this
 

TCG Member 5219

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Mar 22, 2005
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Some of the comments in willizm's thread intrigued me. I was only 20 in 2008 so I wasn't in the market for a house, but some of the stories I hear about people being offered mortgages for homes that were worth 6x (or more) their annual income just seem crazy to me.

When I bought my house in 2012 I asked them what they'd approve me for if i were applying solo (no spouse) and at ~$60k at the time with a $400/month car payment, the bank said they'd approve me for a $180k mortgage (assuming minimum 5% down). That seemed reasonable to me

Well mine was pretty normal - for 2006 housing market.

We bought our townhome from Centex Homes preconstruction. Put down deposit in april06 and closed in sept06. When we were going through the loan app process, we were told over and over and over (cant type that enough), that we would be making tons of money on this place buying it in the last phase of the subdivision and preconstruction.

The guy wanted us to do a first and second loan. The second being fixed but the first being an adjustable rate. We said no dice, even though they hard sold it. I decided to put down my total money saved which was just shy of $40k. Did the 30 year fixed at like 5.25% iirc. Our credit was great and so was income, so that was prime at the time I think.

We put every option into the home that was available. The plan was to keep it and live in it for two years, then cash out my DP along with any profit. Well 6 months into the loan, thats when the market shit the bed. We scrambled to atleast refi out our dp, but it was too late. The place was appraising for about what we owed. We decided to stick it out because we wanted to break even atleast, and were hoping in 3-5 years we could.

Meanwhile we got married and had baby #1 on the way. All was well until baby #2 showed up. We quickly realized that our 2 bedroom 1 and a half bath TH with no basement or storage to speak of was NOT going to work. At that time the TH was appraised at $85k. Yep. So we owed about $180k at that time. So we decided to move out and rent, and rent it out at the same time.

Problem was people didnt want to pay $1400 for a rental townhome. They wanted to pay $900-$1100. Well we had to take it, so it was rented out for $1100. We went through 4 sets of dead beats before we had enough. Right at the same time, my contract ended for work and I was out for 6 months. We put it on the market and sold it for half what we owed. I never got my cash out, and had been covering the -$300 every month since we had left for almost 2 years. It was a nightmare that we never saw coming. We were able to dig out of all that, and make good on everything over the last two years. Now we are debt free, but still renting. We wont be debt free for long. We are going to be getting two cars and a house very soon. The only saving grace is we are now solid platinum in the credit department, and I only will need to do a 15 year mortgage if we stay in budget.
 

Chet Donnelly

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why did you sell?

I saw no recovery in site so I cut my losses. I bought a house in 2011 because I was now married with kids (was single when I bought the town home) and we didn't have enough room for more children and wanted more.

The homeowners association would not approve me to rent the unit, and the bank wanted $100k cash to refinance the loan.

Credit got hit 50 or so points, but that was it. I was able to refinance a few months ago at the best available interest rates, so I had no negative impacts from the short sale.
 

Gone_2022

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Sep 4, 2013
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In 2006 I was 23, made $50k a year, had about $10k in my bank and had not a single debt payment. I was one year out of college and lived with my parents.

I was offered a mortgage of $275k with a 3.5% down payment not even made by me, made by a government first time home buyer program. Rate would have been 6.25% for a 30 year fixed conventional. Principal and interest payment would have been just shy of $1,700 and I brought home somewhere around $3k a month (don't remember exact). They even had me come in and listen to a sales pitch on why I should go for a home in this price range because prices were going up so fast that I would be able to pull out home equity in a few years in case money got tight.

I ended up purchasing at $184k and they told me I was making a huge mistake and leaving money on the table.

I sold the place for $82k in 2012.


Glad you didn't listen to them. You were not making anywhere close to what you needed to for a 1700 dollar payment. And if that didn't include taxes just p&i you were fucked.


To put it to today's standards as far as how safe banks are now. We are making triple what you were back then per month and we were only approved for a home up to about 360-400k depending on taxes which would have brought us close to your 1600-1700 payment for just principle and interest


Anything over 35%-40% debt to net becomes a no no for banks nowadays
 

cap42

Restoration Hell
Mar 22, 2005
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I bought a townhome in 2004 FHA 6.75% rate at the time (credit wasn't great and I had just gone through alot of what ZXMustang was doing at the time to fix it.) Also 0% down, I just paid closing costs out of pocket. I made around 55k at the time and the banks told me I could afford 215k. Me being a not so great math person but smart enough to know when I am getting in trouble settled for my townhouse.

The townhouse was $130k and was going into foreclosure so it was below market of it's neighbors and the current owner had days to close before the bank took it.

I did little work to it here and there but nothing more than $4k I sold it in 2007 right when the market was hinting at going south for $162 so I made out on it.

I rented for a year till after my wife and I were married and recovered from the wedding (paid for the whole wedding ourselves).

August of 2008 we bought our current house for 220k (actually 209 but it was a seller credit for our closing costs. How that all works is still got me scratching my head) we paid out of pocket absolutely 0 to move in no down payment and again a FHA loan.

Within a few months there were 13 houses in our area in foreclosure and our house was worth 150k based on market data. Now by this time my credit was ok.. my wife's was fantastic and we were still at %6.5 interest and when we went shopping for the houses the banks were telling us we could buy a 350k home with 0 down payment. My wife and I did the numbers and were uncomfortable with that monthly mortgage so we settled on our current house. At this time in 2008 with both our incomes and still a bit of debt we weren't living high on the hog but we weren't on ramen noodles diets either.

Today the market is doing better but my house even with it being 95% remodeled and in one of the best shape of the neighborhood (which is decent btw) it's still a crap shoot to sell it at 200k. This is after 50k+ worth of repairs and upgrades. We are going to wait till spring to sell this house and hopefully break even with selling costs. My salary alone is more than what my wife and I were making together back in 2008 and we just want a bigger home. Our bank is telling us we can afford a 550k house which may be true but there is absolutely no need for it and I still think that's a bit inflated. We are going to limit ourselves to 350-375k or lower on the next house.

I don't know if banks consider the taxes when they throw out their number but it sure seems like they don't.
 

Yaj Yak

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Glad you didn't listen to them. You were not making anywhere close to what you needed to for a 1700 dollar payment. And if that didn't include taxes just p&i you were fucked.


To put it to today's standards as far as how safe banks are now. We are making triple what you were back then per month and we were only approved for a home up to about 360-400k depending on taxes which would have brought us close to your 1600-1700 payment for just principle and interest


Anything over 35%-40% debt to net becomes a no no for banks nowadays

debt to gross income

not net.
 

Gone_2022

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I bought a townhome in 2004 FHA 6.75% rate at the time (credit wasn't great and I had just gone through alot of what ZXMustang was doing at the time to fix it.) Also 0% down, I just paid closing costs out of pocket. I made around 55k at the time and the banks told me I could afford 215k. Me being a not so great math person but smart enough to know when I am getting in trouble settled for my townhouse.



The townhouse was $130k and was going into foreclosure so it was below market of it's neighbors and the current owner had days to close before the bank took it.



I did little work to it here and there but nothing more than $4k I sold it in 2007 right when the market was hinting at going south for $162 so I made out on it.



I rented for a year till after my wife and I were married and recovered from the wedding (paid for the whole wedding ourselves).



August of 2008 we bought our current house for 220k (actually 209 but it was a seller credit for our closing costs. How that all works is still got me scratching my head) we paid out of pocket absolutely 0 to move in no down payment and again a FHA loan.



.


The closing cost credit is just a different way to look at the money. You either have 4000 dollars or whatever to pay out of pocket on top of the down payment, or if the seller pays that it's just more "liquid" cash in your pocket.

Example you offer 200k on a home and you pay your closing costs.

Vs offering 205k and the seller pays 5000 in closing costs.

Either way it's the same just a different way of looking at it. It's essentially taking money from the seller, so if you look for all closing costs to be paid you normally do not low ball your offer as much
 

radioguy6

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I don't know if banks consider the taxes when they throw out their number but it sure seems like they don't.

my bank calculated property taxes based off previous owner with a senior freeze in the 1980s at like $1,800/year :rofl:. My escrow account was underfunded until that first adjusted tax bill came. I anticipated and knew the escrow would jump about $250/month, but the bank didn't care to mention that. This was in 2009 too after SHTF
 

cap42

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Mar 22, 2005
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my bank calculated property taxes based off previous owner with a senior freeze in the 1980s at like $1,800/year :rofl:. My escrow account was underfunded until that first adjusted tax bill came. I anticipated and knew the escrow would jump about $250/month, but the bank didn't care to mention that. This was in 2009 too after SHTF

In this case the bank knew the property you were looking at?

I guess I should have stipulated when I worked with the banks in all cases these were "pre-approval" amounts.
 

Gone_2022

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The bank should take that into account. At least they do nowadays. Especially here in shit hole Illinois. That is the biggest factor on your payment. While the loan is spread out over 30 years, taxes are paid in 12 months. Or twice a year if you elect to do it that way without escrow.

10k in taxes vs 5k in taxes is huge if you are payment focused. Totally changes your home buying range
 

sickmint79

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mine was from an acquaintance (wife of my bro's ex in college) - mortgage guy at the time living in gregg's landing - it's a very nice part of vernon hills. i remember being at their house discussing this, and their master bathroom was to this the day largest i've ever been in of anyone's home. the place was huge and very nice. these are million dollar homes.

i graduated in 2001. i think him a year or two later? this was at the end of 2004. iirc i was making 65k. probably had 40k or something in my 401k. cash and assets realistically probably 25k cash 5k misc stuff.

i set my limit at 250. my p's were going to help me out but my dad said no once he thought i was spending beyond my means (both accountants) and said i should be looking more around 185k max. which got you a whole lot less than i was looking for in lake county in 2004/5. even less getting closer to the city in the nw.

when recording my assets, this guy basically wanted me to commit fraud and claim i had 100k worth, mentioning how i have stuff left over from college like my computer and couches and etc. "that stuff's worth a lot of money! let's just say 100k." 'are you sure you only want 250? i can get you 350 easily. we can go up to 500 no problem.'

i got someone else a bit after that. my first loan was 242,500 at 5.25% on some kind of ARM iirc. the realtor was a techy guy who got his real estate license then who i met on a bmw board, and the mortgage guy was a polish bmw guy he knew and who i autocrossed a few times with later. we refinanced my mortgage on the hood of his car at one of the windy city bmw autocrosses later.
 

sickmint79

I Drink Your Milkshake
Mar 2, 2008
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The bank should take that into account. At least they do nowadays. Especially here in shit hole Illinois. That is the biggest factor on your payment. While the loan is spread out over 30 years, taxes are paid in 12 months. Or twice a year if you elect to do it that way without escrow.

10k in taxes vs 5k in taxes is huge if you are payment focused. Totally changes your home buying range

i don't escrow taxes. just make a fat payment in june and fat payment in september.
 

Gone_2022

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I don't escrow either. No point in giving the bank money each month interest free, if I don't have to.

Some people may like to do that as its taken out each month. People need to realize that $500 dollars extra in your payment just doesn't go away. Its not your money even though its in your bank account. Some people Just need the extra help for discipline. No shame in that
 
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