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Hey, Small Spender

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Posted On: 10/26/2016

Question: We live modestly and are very careful with our money. The result is that we have the ability to put down 20 percent for a home. This has proven to be a problem because lenders and brokers seem to think we want a big, expensive house. We don't. We want a smaller house that has less to clean and maintain, a house with smaller monthly payments. We don't want to drain our savings. Why is this so hard for everyone to understand?

Answer: We are a nation that widely celebrates wealth and the trappings of wealth. On television you can find programs about the lifestyles of the rich and famous. You can see the penthouse apartments, the estates, the big boats and the fancy cars. We applaud people who move up.

Nothing is wrong with any of this. About 70 percent of our economic growth comes from consumer spending.

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“Credit expansion,” said Fannie Mae Chief Economist Doug Duncan in August, “combined with improving labor market conditions and strengthening household balance sheets, should continue to support consumers, who will likely be the primary driver of growth again in the second half of the year.”

Translation: There should be more jobs in the second half of the year. With more jobs people will have more income. More income will lead to the ability to borrow more. If consumers take their new income and spend, spend, spend it will be good for store owners, auto manufacturers, restaurants and the housing market.

As a country, it's a good idea to encourage consumption. However, you're not a country. You are a household with personal preferences that favor saving. You have every right to your choices.

Lenders and brokers often work with individuals who want as much house as possible. This often leads to affordability concerns.

“Although nearly one in five U.S. housing markets was not affordable by historic standards in the second quarter, the good news is that affordability is improving compared to a year ago in the majority of markets thanks to a combination of slowing home price appreciation and accelerating wage growth, along with falling interest rates,” said Daren Blomquist, senior vice president at ATTOM Data Solutions, a real estate research company.

In your case affordability is not an issue. You're not trying to buy the largest house in the neighborhood. At the same time, you represent a different picture for many in the real estate industry.

First, there are economies of scale, which make bigger mortgages more attractive for lenders.

Second, for a long time the brokerage industry has had a star-system of sorts where brokers and salespeople get recognition based on their annual dollar-volume production. In such an environment the reasonable tendency is to favor bigger sales because that's a traditional index of productivity and success.

In your situation you need to sit down with lenders and brokers, explain the financial facts of your life, and show them how they benefit. Yes, you can afford more. No, you're not interested in a bigger house or a bigger loan. However, the good news is this: Your loan application will be easy to process because you're so well qualified for the financing you want. And, because you can easily qualify for financing, closing on a home will not be a heart-stopping drama for brokers or sellers.

Peter G. Miller is author of "The Common-Sense Mortgage," (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.

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