Home Loans – Then and Now

The only way getting a loan now versus getting a loan then is similar is as follows – it is a situation fraught with uncertainty.

Home Loans: The Old Way

In the old days, the borrower would dress up in his or her nicest clothing. Back when women wore dresses every day and men wore suits even on the weekend, the borrower would wear his or her sharpest outfit.

They were going to the bank, after all, those monoliths of stone and brick designed to make outsiders feel simultaneously secure and intimidated. That’s where the money was held. And that’s where the decisions were made.

Because at that time, the bank manager or loan official decided whether someone was a good risk. The decision maker was often someone you sat a few pews behind in church, or that you saw sitting on his family’s blanket while you and your family sat on yours a couple feet away on the 4th of July before the fireworks show, or that you knew their cousin was always rumored to have a flask in his pocket at work.

It was small town America, or even small community America in the midst of a large city. People knew one another, and the decision maker took into account the borrower’s work history, and what he needed the money for, and what his reputation was, and his appearance. They then spent some time thinking, because there is no better fraud-detector than the human mind. They weighed risks and benefits for the bank, and made the decision. And while they decided, the potential borrower waited, and wondered, and hoped they’d get the loan.

Home Loans: The New Way

Now we sit at home, in our blue jeans or sweats, and type our answers onto lines and check boxes. We glance at the little ‘secure’ symbol on the lower part of our screen as we type in our social security number and we mutter, “I hope this is safe…”

We hit ‘submit’ and within the hour a person we’ve likely never met in person calls us to say, “I’ve looked over your information and it appears that you will be able to purchase a home in the amount of two hundred thousand dollars.”

But in both cases, the borrower wondered, once for days or weeks, now for hours at most, if they’d be able to qualify to purchase the home of their dreams. And for the bank, in both cases it’s about risk vs. reward. If the bank loans the money, will it get it back, with interest?

There’s a ton more to say about this – about how loans used to be structured and how they’re structured now, the time commitment for both parties, sub-prime loans and who bought them, why we’re in the mess we’re in, which U.S. President to blame, blah blah blah. I’ll post on all of that some other time.

What you might want to do, to put you back in touch with the way things used to be done, is dress up when you go online to fill out your loan application. Then you’ll at least look good if the news is bad!