by Jon Bodan
President of The Perpetual Financial Group, Inc.
We all know and are likely intimately familiar with the real estate markets nose-diving around 2007, and the Great Recession that it caused. So how have we had staying power during a time when 90 percent of our competitors went out of business? Flexibility.
Underwriting guidelines on mortgages were out of control in the times leading up to the housing crisis, and if you had a pulse you could pretty much get a loan. Now the pendulum has swung in the opposite direction, and the banks are so puckered up that you can light your cigars with $100 bills like a boss, and still get denied for some dumb technical thing. It”s absurd.
So what we try to do – and if you”re looking for a home loan for a purchase or refinance, you should demand this from your lender – is out of the box thinking. It doesn”t mean that everyone can get a loan, because that”s not the case anymore. If you don”t pay your bills, no one is going to loan you hundreds of thousands of dollars to buy a place.
What if you”re self-employed? Show some income, please. You have to pay some taxes, because what you show Uncle Sam on April 15th is the same thing that the underwriter is going to look at. Stated income loans went the way of the dinosaurs five years ago, unless you want to pay 15 percent interest, which you don”t. So that means that if you want to buy a new place you need to have your lender plan that out with you in advance, before tax time.
The underwriter is most likely going to use a two-year average of your tax returns, so what you did two-three years ago impacts what you”re trying to do now. Writing off that trip to Vegas as a “business expense” may not be such a great idea, champ!
What outside the box thinking DOES mean is that your lender needs to take the time to understand your situation fully before you put a contract on a house, and that the hair on your file is shaved as closely as possible…because there WILL be hair on your file.
Every deal is hairy for some reason. Yes, that means you. Sometimes that understanding has to do with your income – where does it come from? Is it seasonal, or does it fluctuate because you”re on commission or you”re self-employed? Sometimes it”s related to your assets. Sure, you can take money out of your IRA to put down on the house, but can you pay the taxes on the withdrawal? Because the underwriter knows that Uncle Sam has his hand out, and you have to pay it.
It”s very important to look closely at your loan file before you get too deep in the process, because the lending environment has a lot of buried landmines. They”re things that really don”t have anything to do with whether you”ll pay your mortgage on time – it has to do with the ability of the bank to sell your loan to Fannie Mae, Freddie Mac, or to the FHA.
That”s what a good mortgage lender will do for you.
Start the process early, build a relationship with your lender, and don”t go on Bankrate looking for the cheapest sweatshop. They won”t fight for you because they”re doing the loan for $50 and don”t really care if you close or not.