Eli5: Why do banks own houses?


When and why did banks start owning houses and land? When did mortgages start?

In: 3

Banks don’t “own” like I think you’re thinking. They loan someone money yo buy property but hold a lien until paid off. So they only way a bank would own it is if it is foreclosed on and then the bank would just sell it to someone else to get their principle back.

By the time most people could save up enough money to buy/build a house outright, they’d be too old to start a family, etc.

So mortgages are a way to get the house when you need it, when you’re starting a family, etc. The banks pay the seller, and then you pay back the bank with interest over time, so that you have use of the home when you need it even if you won’t fully own it until you’re much older.

Banks don’t own houses as inventory to sell like a store owns pairs or shoes, etc. They just lend you the money when you buy the house from the previous home owner, thus becoming your partner in owning the house. Say you put down 20% down payment and get a mortgage for the remaining 80%, then it’s like the bank owns 4/5 of your house. Over time, as you pay down the loan principal and the house appreciates in value, your stake goes up and their stake goes down.

Banks only own land/homes when they foreclose on a mortgage because the borrower doesn’t pay.

In the US, the first bank to offer mortgage loans started in 1781, but it was mostly for farms.

Banks have pretty much always been in the business of giving people money upfront in exchange for getting more money back slowly over time. In the case of a mortgage, it is a very large loan, so they get to collect intrest for a long time and it’s not like that investment can go anywhere; if the person doesn’t pay, it’s very easy for the bank to come and take the house and sell it to recoup their losses. It’s easy money.

Well one way is for example you buy a house using a loan from your bank. Unfortunate circumstances happen and you lose your job and you can’t pay off loan, so of course this makes the bank mad at you and they do what is called a foreclosure.

Since you can’t afford to live there you have to move out (or force by eviction) and the bank buys the house so they can sell it and make their money back. Well if you want to go deeper, technically they didn’t lose any money but they sure are making more. And banks sure do love making more money any chance they get.