Mortgage lenders have of late eased their standards and started issuing cheap Adelaide Residential home loans to individuals who have low incomes. But if the economy, unfortunately, goes into a downfall, many of these low-income workers may find that they cannot afford their mortgages. This can lead to a large number of foreclosures, spawning a housing crisis.
Stricter Mortgage Regulations
A housing crisis will likely take out some large mortgage lenders. When the dust settles, regulations will become more stringent for individuals who want to purchase a home on a mortgage. Lenders may start asking for down payments as high as 30% of a home’s total value before lending any money. This kind of down payment may be too high for many first-time home buyers, weakening the housing market.
Purchasing Multiple Properties
Fortunately, stricter mortgage regulations do not hurt individuals who have enough purchasing power to buy multiple properties. Unlike indebted individuals, able persons or investors can purchase an unlimited number of properties with a mortgage. People with acceptable debt to income ratio or those that enjoy financial freedom are not restrained when buying multiple properties.
Every time an individual acquires a loan or any other type of debt, it affects their financial status by increasing their debt to income ratio. This ratio is calculated by comparing an individual’s liability against their net income or total earnings. Lenders use the debt to income ratio to determine a person’s ability to settle withstanding loans.
This matches the credit score concept, whereby if someone goes beyond a specific threshold, lenders might believe that it would be difficult for them to pay back the money. If an individual keeps purchasing new properties using mortgages, their debt to income ratio also increases. It will reach a time when this ratio will exceed the set threshold, thus preventing them from acquiring more properties. At this point, a person’s purchasing power is limited to the worth of their asset column.
Buying Properties Easily
There are many ways of purchasing multiple properties. The easiest is by not dwelling in any of the homes. If an individual uses one of the houses as their primary residence, it limits their purchasing power once lenders apply the debt to income ratio to their situation.
Stable Tenants and Blanket Mortgages
Most lenders prefer offering additional mortgages to people who record a history of stable tenants. Once a person has established an array of rental properties, lenders may allow them to use those properties as a cover or blanket mortgage. Lenders use blanket mortgages when dealing with property management companies and housing realtors with large-scale rental operations.