Mortgages: Now & Then

Way back when I started out as a real estate agent in 1985, we didn't have cell phones, we didn't have faxes, and when you wrote out an offer you really wouldn't know for several weeks if the buyer would be approved for a mortgage or not. I did the "pre-qualifying" by asking the buyer for his/ her income and plugging in the current interest rate, loan amount and number of payments on my HP calculator and solving for the monthly payment. If that plus the taxes and insurance on the property (and condo fees if the property was a condo) amounted to less than 30% of the borrower's gross income, we were good. I explained to buyers that the lenders would take a risk on the buyer or the property, but not both at the same time. If the buyer had good income, a low debt level, and a downpayment of 20% or more, then the lenders were less concerned about the property. But if the buyer had less than 20% for a downpayment, and high debt levels, then he/she had to pay extra for PMI (private mortgage insurance) and the condo had better have a very high owner occupancy and adequete reserves.

All that changed along the way. Someone got the bright idea to pre-approve the buyers and gave them certificates that stated how much of a mortgage they were good for, long before they found a property. With a rise in concern for buyer financial privacy, since almost all agents were working for the sellers at that time, anything an agent found out about a buyer's financial situation, was required to be reported to the seller, "pre-approvals" from a professional in the lending business, kept the agent and the seller out of the buyer's finances. Trouble was, there were pre-approvals and pre-approvals. Some weren't worth the paper they were written on.