Would you loan money to these people? You are in charge.

How are loans approved? Character- Will you repay? Look for time at job and home, credit history, consistency and promptness in paying. Capacity- Can you repay? Amount of paycheck, long-term debt, size of down-payment, amount to borrow. Collateral- What can we take if you don’t repay? Things with a title, such as a car or a house.

Louis and Lois The facts: They have dated for 6 months and are moving in together. They make $35,000 between both of them. They have no long-term bills. They want to buy a $85,000 mobile home.

The home of their dreams

They go to you, the loan officer. Results Conservative Lender Aggressive Lender They can afford 75,890 97,810 Mortgage payment 485 631 Plus taxes and insurance 332 Total monthly payment 817 962

What are the pros and cons? 1. They have been on at their jobs for two years. They need the combined income to make the payment. 2. They have $3000 saved for a down payment. They have only been together for six months. 3. No outstanding bills

What would you tell Louis and Lois? Yes or No? Is there any unofficial advice you would want to give them, if you could?

Ebenezer decided it’s time to buy a house. The facts: He makes $80,000 a year as a rocket scientist. He’s worked there for five years. He wants a $250,000 house, and has $40,000 saved for a down payment. His student loan payment is $200/month. He has no other long-term bills.

The house he wants

He goes to you, the loan officer. Results Conservative Lender Aggressive Lender He can afford 310,000 369,000 Mortgage payment 1535 1868 Plus taxes and insurance 332 Total monthly payment 1867 2200

What are the pros and cons? Steady income, working for past five years High income of $80,000 $40,000 down payment Even a conservative lender would loan him money to buy a $310,000 house. The cons: $200/month student loan

What would you tell Ebenezer? Is there any unofficial advice you would give him, if you could?

Helga and Harry The facts: They have fallen in love with a loft apartment in New York City, and their friends love it, too. It’s $490,000 to purchase. Harry makes $60,000/yr, and Helga $58,000, for a combined income of $118,000. They have had their jobs for the past five years. They have $10,000 saved for a down payment. Their student loans are $250/month. Off the record, Helga wants to quit working in three years and then be a stay-at-home mom.

Harry and Helga’s dream home

They go to you, the loan officer. Results Conservative Lender Aggressive Lender They can afford 413,900 496,000 Mortgage payment 2422 2913 Plus taxes and insurance 332 Total monthly payment 2754 3245

What are the pros and cons? They make $118,000 between the two of them. They have been working steadily for 5 years. They have $10,000 for the down payment. It’s close to everything, and they love it! The Cons: Helga wants to quit work after 3 years. They need the combined income to pay mortgage. They can barely afford it, even to an aggressive lender.

What would you tell Harry and Helga? You, the loan officer, cannot ask them about their future plans. What would you want to ask them?

What if you only count Harry’s income? Results Conservative Lender Aggressive Lender They can afford Was 413,900- 188,000 Was 496,000- 230,000 Mortgage payment Was 2422- 1070 Was 2913- 1318 Plus taxes and insurance Still332- 332 Still 332- Total monthly payment Was 2754- 1401 Was 3245- 1650

As Harry and Helga’s friends, what would want to say?

Ernest wants a house!

What are the facts? The house only costs $30,000! He has a steady job making $22,000/year. He has $1500 saved for the down payment. The house needs new septic, well, roof, electrical, furnace, and kitchen cabinets, $35,000 for all the materials, not counting labor. It also has rats. But it has no termites! Ernest thinks his friends will do all the work.

He goes to you, the loan officer. Results Conservative Lender Aggressive Lender He can afford 26,250 38,700 Mortgage payment 182 274 Plus taxes and insurance 332 Total monthly payment 514 606

The Pros and Cons Cons He barely qualifies. He has no money for repairs, and can’t live in it until they’re done. Pros He kind of qualifies. He knows what it’ll take to repair it. He’s lazy!

As the loan officer, what is your answer? Why?

When looking at homes, YOU have to be the best judge on whether you can afford that new home. Can you make the monthly mortgage, taxes, and insurance payment? Can you pay the utilities, repairs, and surprises? What are your future plans? Income? Do you have enough money for savings?