After a couple of years of cash buyers, of late I have had buyers who are trying to get financing and not having the kind of luck they hoped. To be clear, the lenders, banks and mortgage companies, are not easy to work with these days. They are understandably gun-shy after the last 5 or 6 years, and really only a couple of them are even trying to originate new home mortgage loans.
Naturally, if you were trying to get a mortgage today, you would want to present yourself in the best possible light, but you have to be able to prove what you say. You’ll need to supply your last couple of years of tax returns, and you can be sure the lenders will scrutinize all the numbers there. And of course they also see your complete credit report, which includes not just the “score” that we all have grown to know—if not understand—but also big problems (in red) including foreclosures, or loans and debts that went unpaid and were written off or maybe were paid off, but were not recorded as having been paid off; and lesser problems like late payments, errors and misunderstandings and open but unused charge accounts (often from years ago).
Let me take this opportunity to remind you that if you are thinking in terms of looking at real estate in the near future, it’s time to get a copy of your credit report and review it for accuracy. I personally had a chance to review my own credit report—this is some years back—and found a half dozen gas station credit cards (none that I had charged anything on for years) and on that same report I found several other credit cards that I had totally forgotten, ones which I had cut into pieces and thrown away, but which were still open and available for use. If you have 10 unused credit cards, and each one has a credit limit of $2500, the lender will dock your borrowing capability the amount you have permission to charge: $25,000 or demand that all the cards are closed out.
These phantom cards and charge accounts will sink your chances of getting a loan until they are corrected. Here’s the worst part, you can’t just call the company and say. “Cancel my account.” Well, you can call and say that, but simply asking doesn’t get the data off your credit report. You’ll need to ask the credit card company to both remove your account from the credit report AND send along a letter to you indicating that you are in good standing with them and they are working on getting your data corrected with the credit agency. This can take months, so, again, if you are looking at real estate, get going on this effort.
I was recently told by a cooperating broker that her client (a potential buyer of one of the properties I represent) was having trouble with his lender because while he had a pre-qualification letter based on his “stated” income—his credit report had some anomalies and his tax returns did not show his income to be as high as he stated on his first conversation with the lender. He was working with Quicken Loans—an internet based lender—and with a loan originator whom he would never meet in person. It seemed to me there was no fibbing in making the application, but when you report your salary and that of your wife and then a part-time job that might add another chunk to the total—these sources of income had better all appear on the tax return.
I am not a huge fan of the mega lenders. They certainly have the money to advertise and that means we all know their names, but borrowing money is stressful and it helps to have a real person you know and trust as your originator. Also, the difference in costs is so small, remember they all get the money they lend from the same place, and the rates are regulated by the Federal Reserve. So whether you go to Quicken or Bank of America or the Real Trusty Loan Company, the rates will likely all be within a half a percentage point. And most loans are written for a term of 30 years, but most of us only keep the home for about 5-7 years, and may refinance in the meantime—meaning the loan may only be in place for 3-5 years on average. What you are really looking for is service. So if you are in the market to buy real estate, interview some of the lenders you might consider using before you actually need the money, you’ll thank me later. Really. And you’re welcome.
Dane Hahn is a real estate professional serving the Suncoast of Florida from Sarasota Realty Associates. Contact him at 941-681-0312 or by email at firstname.lastname@example.org