The Tighter Loan Market: Your 2nd Home, NYT
Frustrating: That’s what it is. At a time when homes — especially
second homes in some regions — are dropping in price, it’s getting
harder to get a loan to buy one. Banks, naturally skittish after this
year’s mortgage crisis, are tightening their purse strings, and it
takes a lot to tug them open.
By Billie Cohen, November 28, 2008, NYT
“The interesting part is that you’re going to get some of your best
buys in your second-home markets right now,” said Marc Schwaber,
president of Preferred Empire Mortgage, a Manhattan-based brokerage. In
his own search for a property in Florida, Mr. Schwaber has found prices
that have dropped 50 percent in the past two to three years. “The
second-home market in many ways holds its value really well, and people
want second homes. But banks can’t seem to ease up on their guidelines.”
The caution is understandable. “Look at it from a lender’s
perspective,” said Eric Tyson, a former financial adviser and co-author
of “Home Buying for Dummies.”
“It all comes back to what is the risk of defaulting on the loan?
And worried lenders are finding out today how high the default rate can
be on homes in which people live. If it’s a second home, and not even
your primary residence, there’s potentially even more temptation and
ease to walk away from a property.”
But, Mr. Schwaber added, “It doesn’t matter if it’s a primary or
second home.” To him, the more pressing concern for banks is: Does the
client fit the ratios?”
“I’ve been in this business since the mid-’80s — the old rule of
thumb was called 28-36, which meant that you could spend 28 percent of
income on primary housing expenses and 36 percent of your income over
all,” Mr. Schwaber said. “Is it easier for primary or secondary? The
answer is your secondary home has to fit into a certain ratio. Each
bank these days sets guidelines for their ratios, and there’s no such
thing as 28-36 anymore.”
Instead, he continued, banks look at a range of factors, including
income, assets, credit and post-closing liquidity. “If you have a
tremendous amount of post-closing liquidity, and can put a good amount
of money down,” he said, “would that not qualify you differently than
someone who may be able to put a lesser amount of money down or have
less money after the transaction is complete? The banks are starting to
use common sense underwriting again.”
Link to full article
