Banks, Mortgages, and The Sad State That We Live In

In October of 2011, our daughter informed us that she wanted to go to a high school in a different town. Being good, supportive parents, we agreed to the idea. We found out that to go to this high school, we'd need an address in said town. We'd been entertaining the idea of moving there anyway, so we started looking for houses.

We couldn't find anything that we liked in our price range, so we considered a "temporary" house. We'd lived in an apartment before; while we're not above doing it again, if we didn't have to, we'd rather not. A friend told us about a house that was not officially on the market, that could be bought for very little money.

This house had been built in the 50s. The family that lived there passed away, and left it to their son. When the son died, he left it to his son and niece. The person in posession had never liked his father, so he wanted nothing to do with this house. He wanted to sell it, split the money with his cousin, and go on about his life.

We talked to him, and settled on a price of $55,000. This seemed like a good number, as the house had appraised for just over $70,000 just two years ago, when the father died (please note, this is after the real estate bubble burst). The house needed some TLC (nothing was wrong with it physically, but the family had smoked in it for many years, and so the walls and carpet were stained; these could easily be cleaned), but was able to be moved in to.

My wife started talking to CitiMortgage in November 2011. We informed them that we wanted a loan with a 5% down payment, so we'd still have enough money left over to clean it up. They informed us that this would be no problem. We signed the initial paperwork, and the process began.

Right after New Years 2012, our contact at CitiMortgage called us, and informed us that 5% down would not be possible, and that we'd need 20%. I was furious. 20% would mean draining our limited savings, and would leave us without the required funds to bring the house up to a place where we were happy with it. So I called our local credit union. This was mid-January.

I gave our contact there the same stipulation: 5% down. She assured me that this would not be a problem. We went through the entire process: appraisal; home inspection; getting the electric turned on; getting a pest inspection. We spent nearly $500 on a house we didn't own (and were fine with this) so that we could purchase it. We went back and forth signing all the paperwork that needed to be signed.

Yesterday (April 12, 2012), our contact informed us that we'd need 20% down. There wasn't a mortgage insurer that would cover the other 15% of the loan value because of the condition of the house. The appraiser's recommendation was that it would cost almost $5,000 to bring the house up to a livable condition (remember the smoke stains I mentioned above?). We could, in theory, get a loan for the other 20%, but this would cause the bank to need to recalculate our debt to income ratio, to make sure we were still within the magic limit.

This wasn't worth the hassle to us. We called the bank and thanked them for their time, but we were no longer interested.

This brings me to the point of this post. I typically consider myself to be a centrist. I don't particularly lean left, nor do I lean right. I'm more Libertarian than I am Statist. So it pains me when the government gets it's hands in the way of what determines the amount that a bank can loan me.

The process should be "simple":

Step 1

I go to a lender, and say I want to buy House X. House X is listed for $200,000. The lender checks the appraisal (if one exists); does the house appraise for $200,000? Yes? Ok; Step 1 complete.

Step 2

The lender checks my credit score. Is my credit good enough for a $200,000 loan? Yes? Ok; Step 2 complete.

Step 3

The lender checks my debt to income ratio. Can I actually afford the payments on a $200,000 loan (taxes and insurance included). Yes? Ok; Step 3 complete.

Step 4

There is no Step 4.

At the end of Step 3, I have a loan for the house. The bank owns it. I'm paying the bank, and at the end of the mortgage term, I will own the house. Or I can sell the house to someone else during that time, at which point, someone else will be paying for it.

I understand that a lot of this is to protect banks from people who skip out on mortgages. I get that. But we shouldn't be punishing the people who want to buy a house (and can afford the payments) because of the morons who've caused the problems.

Though, that's exactly the road this country has gone down.