Many real estate buyers have experienced great difficulty in completing their home purchase over the last few years, due to a lender side issue other than the normal credit and job confirmation issues. I have seen many potential home buyers with credit scores over 700, and a steady employment history, get turned down for financing altogether. We can trace all of these problems back to banks and their hesitancy to loan based on current market conditions.
The Rationale
By waiting unti there is more stability in the market, banks can make safe loans with lower interest rates? By temporarily limiting or not loaning to people who have slightly less credit, the banks can optimize their own performance by borrowing for little or nothing, and getting a return of over 5 percent per year from the lowest credit risks out there. To bolster confidence in our banking system the banks can borrow money for next to nothing, while collecting at least five percent per year return, and report record profits all the while, like they are financially brilliant.
The real estate market crash could not have been better engineered as the banks are collecting REO property and property, they are also planning on how to get all that housing product back onto the shelf for the 88 million new home buyers starting to hit the market. Many changes have had to be made to the laws to allow the banks to most aggressively take advantage of the real estate industry, and that takes time.
The Ultimate Banking Solution
Before banks were global corporations, the home owner would actually fund the home sale. That is right, the home owner simply allowed the buyer to pay them off over time, interest accruing of course, until the debt was paid in full. Not only is this a great way to buy property, but it may be the easiest way to sell it as well.
Even if you have to purchase a building lot and wait a few years to build on it, you are in a far better off situation financially than if you involve a bank. When you total up all the added fees and the interest payment banks will collect, and the insurance that you have to buy for them to make the loan, it really seems like you are the one risking instead of them.
The simple solution is for Americans to be patient and not purchase a home until they have at least 20% saved up, then buy land. Owning the land yourself will always make building your home much easier to finance. Getting back to a frugal mindset that values cash more than materialistic possessions will help you appreciate your money a lot more, and help you grow it more than anything.
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