There was a time when people didn’t get home loans. If you wanted to buy a piece of land you could call your own then you saved your money until you could afford it. I use to think that it was the mentality that had changed; that people had come to a place where they didn’t mind being in debt (and possibly passing that debt on to their children). Recent research has taught me that being locked into debt may not be a choice that we want, but one that is forced upon us.
After the Great Depression, bankers were hesitant to lend money. Loans were only given out at 25% of net income of one spouse and even then it was for the LONG term of seven years. World War II changed all of that.
When the soldiers came back, many of them had no credit history and no way to qualify for a home loan. They had joined the military as boys and now were back as men looking to start new lives. The government stepped in and set up a program that would back the soldiers’ loans and would extend those loans over a longer period of time which would make their payments easier to handle. The new borrowing power allowed more people to buy bigger and better – driving up the cost of housing.
As the housing costs went up, people quit having the ability to buy. Banks liked the boom they had been experiencing after the war. As an industry, lenders revamped their home loans and began to lessen their requirements on borrowers, began extended borrowing terms, and began allowing a larger percentage of a couple’s joint income to go towards payments.
Flash forward sixty years and you have the children of the children that learned to borrow (thanks in large part to the government) over long term. Home loans are now extended to forty or fifty years. To put it in plain terms, you can borrow money that you aren’t planning to pay back until your grandchildren are in college.
Unfortunately, if you want a home of your own, home loans are almost the only way to get a piece of that dream. The lenders have pushed the savers out of the market. There is some dim hope. Start small – borrow short term – trade up and you are on your way to having it all, a home and financial freedom.
Kathryn Lang is a freelance writer covering the finance industry. She has written various articles on
home loans and
loans in general.
