by Bradley Parsons
Staff Writer
Thanks to low interest rates and easy credit, the question these days for home buyers isn’t “Can I afford to buy?,” but rather “How much can I afford?”
It’s an economic climate that’s keeping mortgage lenders like Gil Pomar busy. The Jacksonville Bank president and CEO has seen mortgages approved to customers with credit scores or incomes that once would have made home ownership impossible.
“It used to be if you had bad credit, you were going to have a hard time getting a loan. It used to be you needed a 20 percent down payment,” said Pomar. “That’s not the case anymore.”
In some cases, the credit might be too available. Pomar said some buyers snatch up mortgages without fully understanding the terms or the financial impact. Some customers walk into Pomar’s bank without even a grasp of their price range.
“I wish more people would ask themselves the basic questions,” he said. “If borrowers come in understanding their price range, they’ll have an easier time finding a mortgage option that’s going to work for them.”
So how much of one’s paycheck can safely be tied up in a monthly mortgage? Pomar said debt payments shouldn’t exceed 40 percent of a household’s monthly gross income. So a household earning $5,000 a month shouldn’t owe more than $2,000 to repay debt. That includes car payments, credit cards and student loans, but not monthly bills like phone and cable. Mortgage payments alone shouldn’t exceed 28 percent of monthly income, he said.
“From a lending standpoint, we’re going to look at a debt obligation of more than 40 percent as aggressive,” said Pomar.
Banks might take a dim view of that debt load, but in today’s lending climate, even aggressive borrowers can likely find a lender providing they’re willing to pay more interest. Climbing property values make mortgage lending an increasingly attractive investment. The increased value means borrowers can sell property if they fall behind on payments, although exploding property values are driving up the tax burden on owners.
Mortgage lending is increasingly attracting interest from outside the banking industry. The venture capitalists that poured money into tech stocks in the late ‘90s are starting to recognize the relative safety of real estate.
“There’s a lot of liquidity in the market now, a lot more private investors,” said Pomar. “Now a lot of lending is done by pools of investors looking for a certain return.”
Some analysts have drawn parallels between the exploding tech stock market of the ‘90s and the current real estate boom. Some wonder if the real estate market isn’t experiencing its own bubble driven by speculative investment. But Pomar thinks Jacksonville’s residential market is built on a solid foundation.
“There’s always a chance that the music stops and home values stop going up or even potentially go down, but that hasn’t happened for a long time,” said Pomar. “You look at a hot market like Jacksonville with a beautiful climate, low tax burden, a pro-business environment. Those are the things that will continue to make Jacksonville a place where people want to move.”