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Depends - you could have a very high salary and want a really nice house, that might mean you can't afford three holidays per year, nicest food or the latest te

Depends - you could have a very high salary and want a really nice house, that might mean you can't afford three holidays per year, nicest food or the latest technology but it's a tradeoff you could choose to make.

lazide 6y ago
While true - 'traditional' underwriting would not allow that kind of risk, as the lack of slack to be able to take a vacation means another life challenge (6 months without a job?) would likely result in a default at the worst time for selling the asset - when a bunch of other people are out a job. Same with requirements for large downpayments (20% traditionally) - more skin in the game for the buyer, along with more cushion for the bank to make their money back if the market is down when a default happens. Thinner margins, higher leverage happens near the top of debt cycles (typically) as lenders get desperate for return, and amp up risk. The type of leverage it allows also inflates asset prices, as money is 'easier' and people who want asset x can leverage higher to get it, increasing demand.
cbozeman 6y ago
Well there you go, you've identified the problem. We've confused "want" for "need". If you make $100,000 a year, you can't afford a $600,000 home. Too bad, so fucking sad. More people need to be told this, by everyone down the line, from their bankers to their parents. And you're making far more tradeoffs than just three holidays per year, the nicest food, etc.. That level of debt means you miss out on investment opportunities when they present themselves. GameStop might have been one of the most recent and dramatic ones I've ever seen. I wish I had known about Roaring Kitty / /u/DeepFuckingValue a year ago. I've been looking for some investment vehicle to park a significant sum for awhile now. After watching his videos, I would have easily dropped $25,000 there. Unfortunately I didn't know about it. But what's even worse is knowing something is going to take off and not having much - or even worse, any - money to invest. When Facebook IPO'd, I only had $10,000 to invest, but I was able to purchase for $18.50 per share. Would that I had had $100,000...

lazide 6y ago

While true - 'traditional' underwriting would not allow that kind of risk, as the lack of slack to be able to take a vacation means another life challenge (6 months without a job?) would likely result in a default at the worst time for selling the asset - when a bunch of other people are out a job. Same with requirements for large downpayments (20% traditionally) - more skin in the game for the buyer, along with more cushion for the bank to make their money back if the market is down when a default happens. Thinner margins, higher leverage happens near the top of debt cycles (typically) as lenders get desperate for return, and amp up risk. The type of leverage it allows also inflates asset prices, as money is 'easier' and people who want asset x can leverage higher to get it, increasing demand.

cbozeman 6y ago

Well there you go, you've identified the problem. We've confused "want" for "need". If you make $100,000 a year, you can't afford a $600,000 home. Too bad, so fucking sad. More people need to be told this, by everyone down the line, from their bankers to their parents. And you're making far more tradeoffs than just three holidays per year, the nicest food, etc.. That level of debt means you miss out on investment opportunities when they present themselves. GameStop might have been one of the most recent and dramatic ones I've ever seen. I wish I had known about Roaring Kitty / /u/DeepFuckingValue a year ago. I've been looking for some investment vehicle to park a significant sum for awhile now. After watching his videos, I would have easily dropped $25,000 there. Unfortunately I didn't know about it. But what's even worse is knowing something is going to take off and not having much - or even worse, any - money to invest. When Facebook IPO'd, I only had $10,000 to invest, but I was able to purchase for $18.50 per share. Would that I had had $100,000...