All types of loans are subjected to the criteria of character, collateral and capacity to pay, otherwise known as the “CCC criteria” among credit institutions. Residential real estate investment loans are not exempted from these criteria. Years have passed and a lot of lessons learned from the bad effects of the sub-prime mortgage scam that lenders of these investment loans inevitably constrict their loan windows. Institutional lenders are now subjecting themselves to self-regulation subsequent to the U.S. economy inching itself towards equilibrium. Indeed, the economy is easing, it is public knowledge that America’s loan delinquency rate is decreasing but the pace is slow and investments are “heating” in the alternative rental sector which is a logical consequence in housing thousands who were dislocated. Overall, tight credit bearing is not removed specifically the residential loans as lenders are not able to adjust absolutely avoiding speculation invoking the “CCC criteria” in a stricter sense.
The trouble is not absence or lack of money for loans but rather creditors are staying from demands by utilizing the “CCC criteria”, as mentioned before. This on the other hand, is an encouragement for lenders of the residential real estate investment loans to be prepared and careful. Lessons learned on the recent scam, both borrowers and lenders are practicing caution. Thicker “paper trails” is the result of tight credit situation. Borrowers now should be aware that lenders or creditors are extra cautious of the “person” or “character” of their borrowing client. Papers must be presented proving borrower’s credit standing and track record, employment history proving amount and source of income, real property assets with no liens and encumbrances or management experience if the loan will be use for commercial purposes.
Borrower’s real property assets will be checked to qualify for “collateral”; these properties must be free of liens and encumbrances. There are lenders who may accept chattel mortgages or jewelries but they may now belong to the exception than the rule. The mortgage crisis was prodded by the unregulated, non-collateralized loans to residential owners even aliens were enticed to borrow. More importantly, borrowers must convince lenders or creditors that they are willing to pay because they have the “capacity” to do so. Thus, the synergy of income, management acumen and property assignment must be proven on paper as grounds of the borrower to pay both the principal and interest prior approval of the residential real estate investment loans.
Preparation is followed by calculation on the part of the borrower. While the lender strictly monitors the borrower’s preparation to avail of the loan using character, collateral and capacity to pay, prudence is not yet attained if the borrower blindly accepts what is not due. At the very least, borrowers must be prudent enough to know the terms of payment specifically the “due dates”. The borrower must know the law covering the contract, know exactly the amount borrowed, and compute with precision the interest charges and the total amount to be paid over a certain period of time.
To avail of the residential real estate investment loans is a lesson in prudence learned over a long decade at the onset of the 21st century. The bitter pill has to be taken but worked both ways in developing the virtue of prudence in lending and borrowing. While the availability of residential real estate investment loans remained “tight”, it is a message that borrowers must prepare before they plunge.