[gizmo]

A different take on your anecdote is that your friend goes to a big bank and they're willing to take a 20% down payment which gives your friend 5x leverage on the mortgage. Your friend says: "that's not good enough! I need more leverage because I also need money for renovations!". But big bank says "absolutely not, that's irresponsible."

Your anecdote presumes that the small bank is right and the big bank is wrong. I'm not so sure.

[CydeWeys]

It's not more leverage after the additional money loaned is plowed back into the home's equity by way of the renovations, however. The bank simply needs some way to enforce that the additional money loaned is actually being used for this purpose, and that the renovations are of the 'widely acceptable' type.

[ClumsyPilot]

There is nlan easy way to know: big bank didn't do the math and come to a dofferent conclusion, they jusy decided they don't want to deal with the problem.

Also, whay does 'right' even mean in this case? They lost the customer. Unless customer default on the loan, they won't be 'right'

[p_j_w]

>They lost the customer. Unless customer default on the loan, they won't be 'right'

This isn't how banks work. They put in place rules that they consistently adhere to when they decide if they're going to give out a loan to someone or not. The real answer is that if consistently allowing that type of loan would make them more money than it would cost, then they won't be right.