Jumping Through Hoops To Qualify For A Mortgage - A Realtor's Personal Experience

By
Real Estate Agent with Bennion Deville Homes CalBRE# 01339266

With the Real Estate Market having been pummeled since 2008 and mortgage interest rates hovering at all-time lows,, I believe that current conditions present an outstanding buying opportunity .

With that said, I decided to "put my money where my mouth is" and purchase another property.

My partner and I found an exceptional restored mid-century 3-Bed 2-Bath home in Palm Springs. At around 35% less than the price levels seen in 2007/2008, it just made sense to buy the place. We decided to put down a respectable deposit and finance the balance of the purchase price with a mortgage.

That's when the fun and games started!

The Listing Agent suggested we work with a mortgage broker who is familiar with the area and the particular quirks that needs to be addressed with homes in the area, so we decided to apply with him, but at the same time, we decided to apply for a mortgage with the broker I regularly refer my clients to.

As a Broker I obviously don't receive a salary and my commission income can and does fluctuate. Accordingly, I was asked to provide my Tax Returns for 2007, 2008 and 2009 which I immediately supplied. Upon review of the documents, my mortgage broker emailed me back with a question that I took to be a joke: "What was the reason for the decline in income in 2008?"

Excuse me, was he being serious? .... It so happened he was.

I replied as follows: " I imagine you've heard of the Financial Meltdown of 2008 when more than 1 million homes went into in foreclosure; Government seizes Fannie Mae and Freddie Mac; Lehman Brothers declares Bankruptcy; U.S. Government gives 85 billion dollar loan to insurance company AIG; The Bush Administration announces bailout plan; Dow plunges in 2008; Emergency Economic Stabilization Act" (2008) passed .... Need I say more?"

The mortgage broker replied back to me: "I need a good explanation to provide to the bank for your personal situation from 2008, the banks don't want to guess what happened to you..."

At that point my head nearly exploded. I stopped emailing him back.

We decided to get our loan with someone else, and we did!

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Rainmaker
1,178,261
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

Yes, things have changed!  Self-employment income has always been hard to qualify.  Owning my own PM company and my husband having investment income has always made it very difficult to re-fi our home and purchase investment property.  If a "good deal" appears at our doorstep, I may pay CASH and then re-fi once the property is rented and pull the cash out and have the tenant's LEASE qualify my income for the financing.

Sep 22, 2010 01:33 AM #3
Rainer
257,850
Charles Edwards Bentonville
Coldwell Banker Harris McHaney & Faucette 479-253-3796 - Bentonville, AR
AR REALTOR, Bentonville Real Estate Agent and Broker

Stewart, I wish I could say I'm surprised.

 Check this out. I am on a bank board. Recently I had clients visit the bank to have a 'qualifying' discussion with an officer. The banker called me to tell me he thought it went well, he said  to write it up and to take it to the listing agent. HAHAHA! True story. I said 'excuse me, I think I know where to take the offer and the clients will let me know when we'll be writing it up'.

What are these guys smoking?

Sep 22, 2010 01:42 AM #4
Rainmaker
585,725
Mitchell J Hall
The Corcoran Group - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

I recently had a buyer in our business, a home builder. The income in 2008 was so low compared to other years, I had to get them an asset verification only loan. It was one of the quickest loans, commitment in 2 weeks and ready to close. Apple Bank, not sure if they loan in California.

Sep 22, 2010 02:25 AM #5
Rainmaker
482,472
Palm Springs Realtor Stewart Penn
Bennion Deville Homes - Palm Springs, CA
Bennion Deville Homes - Broker Associate

Tricia - Unbelievable and indicative of how narrow-minded the banking business is.

Charles - As I said above, unbelievable and indicative of how unaware and out-of-touch the banking industry is.

Mitch - I didn't know banks still do asset verification only loans. I need to do some research on Apple Bank.

I'm usually a big fan of anything with the name Apple on it:)

Sep 22, 2010 02:32 AM #6
Rainmaker
296,254
David Ames
Zephyr Real Estate, San Francisco - San Francisco, CA
San Francisco

Stewart...just out of curiosity, did this come from the broker you usually use (or the one that was recommended by the Palm Springs listing agent)...although I suppose it doesn't really matter.  The question itself is ridiculous (or should I say, 'fascinatiing').  The important thing is that it sounds like you got it solved.  Congrats by the way!  When do you close?  More importantly, when is the housewarming, and can I come?!  I promise to bring a nice gift.  ;-)

Sep 22, 2010 09:53 AM #7
Rainmaker
296,254
David Ames
Zephyr Real Estate, San Francisco - San Francisco, CA
San Francisco

p.s.(I've been a MAC guy since day one...)  I'm going to check out this "Apple" Bank, as well!

Sep 22, 2010 09:54 AM #8
Rainmaker
585,725
Mitchell J Hall
The Corcoran Group - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Stewart, David, A mortgage broker at Manhattan Mortgage arranged the loan. I think it requires a substantial down payment 25/30% not sure my buyer put down 50%. Apple Bank not to be confused with Apple Mortgage.

Sep 22, 2010 03:00 PM #9
Rainmaker
482,472
Palm Springs Realtor Stewart Penn
Bennion Deville Homes - Palm Springs, CA
Bennion Deville Homes - Broker Associate

David - This came from the mortgage broker I usually work with ....

and yes, I'm now looking for his replacement!

We're scheduled to close mid-October ... and you're definitely invited to the housewarming - seriously! Email me for details:)

Also, I switched to a MAC about two years ago and now wonder what took me so long.

Sep 22, 2010 06:27 PM #10
Rainmaker
808,054
Elite Home Sales Team
Elite Home Sales Team OC - San Clemente, CA
A Tenacious and Skilled Real Estate Team

It is difficult to work with people that do not have a brain.

Sep 22, 2010 06:34 PM #11
Rainmaker
111,448
Connie Johns
Transaction Realty - Toledo, OH
Toledo, Ohio Area Real Estate

Stewart...I literally gasped when I read it was the mortgage broker you usually use!  I certainly can understand why you are seeking his replacement.

Sep 22, 2010 06:36 PM #12
Rainer
265,820
Patty Luther
Rock-n-Roll Realty - Lewiston, ID
Lewiston ID Real Estate, Idaho-Washington

sometimes it makes no sense!  Happy things worked out with the other lender...

Sep 22, 2010 06:46 PM #13
Rainmaker
413,945
Eric Kodner
Wayzata Lakes Realty: Eric Kodner Sells Twin Cities Homes - Minnetonka, MN
Wayzata Lakes Realty: Twin Cities, Madeline Island

I've always found it humorous that lenders worry so about the individual who is self-employed (or multiply-employed, with multiple income streams) and yet they have so much confidence in the ability to pay of an individual who has one job which he or she holds at the whim of a single employer.

People today who are wage-earners are trembling in their boots.  They are one pink slip away from disaster.  And yet the lending industry, in its infinite stupidity, regards them as golden.

Sep 22, 2010 06:50 PM #14
Rainmaker
482,472
Palm Springs Realtor Stewart Penn
Bennion Deville Homes - Palm Springs, CA
Bennion Deville Homes - Broker Associate

Eric (#14) raises an excellent point.

I recently had a client (a Film Producer) who was released from his contract with a studio, but part of his settlement was that he would receive his regular monthly salary for another 18 months. During that time he was free to accept another job.

At the time of the mortgage application he was negotiating to start a new job as a Producer and was finalizing the negotiations.

The lender rejected his loan application on the basis that he wasn't currently employed, even though he had an income stream for the next 18 months AND was negotiating to start a new job.

And people wonder why the mortgage industry is in such chaos ....!!

Sep 23, 2010 12:16 AM #15
Rainmaker
657,302
Ritu Desai
Samson Properties - Ashburn, VA
Virginia Realtor-Fairfax/Loudoun/PW-703-625-4949

LOL!!  I recently had similar situation where a self employed govt. contractor was questioned on similar grounds..luckily my lender was more aware about housing 08 and worked accordingly

Sep 23, 2010 01:15 AM #16
Ambassador
3,209,195
Jeff Dowler
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Stewart - best of luck getting closed. Too bad you had to deal with the absurdity of the bank's inquiry (sir, the reason for the decline in income in 2008 was that I sold fewer homes and made less money. Duh).

Is it any surprise they are in the mess they are?

Jeff

Sep 23, 2010 02:35 AM #17
Rainmaker
1,548,253
Carla Muss-Jacobs, Principal Broker (503) 810-7192
BuyersAgentPortland.com | Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time - Portland, OR
Buyer Focused ~ Buyer Results

Most self-employed people I know are better are personal budgeting and finances.  They have to be!  Best of luck with your new place.

Sep 23, 2010 07:41 PM #18
Rainer
28,255
Tricia Houston
Lending Maven Mortgage - Denver, Colorado - Highlands Ranch, CO

Although I understand your frustration on the part of qaulifying for a mortgage, I will give you some in site as to why they ask for this letter.

The underwriter has to have a COMPLETE picture of why your income is not the same. So although it seems clear to you how does she/he know that you might have been ill and could not work? There could be many reasons as to why your income fell the obvious reason would be the economy but they have to make sure they understand the entire story.

It seems redundant but this is how lending goes.....and this portion of it isn't a result from all the changes, this has always been a qualifying guideline.

Sep 24, 2010 08:29 AM #19
Rainmaker
549,158
Phyllis Lerner
William Raveis Legends Realty Group LLC - Tarrytown, NY
William Raveis Legends Realty Group

...nobody ever said lenders were smart... ...hope you'll find a "somewhat smarter" lender somewhere else...

Sep 24, 2010 09:00 AM #20
Rainmaker
857,818
Maureen Megowan
Remax Estate Properties - - Palos Verdes Estates, CA
Palos Verdes Real Estate Blog

I have been very frustrated not to be able to refinance my current mortgages while interest rates have been so low because of the restrictions placed on self employed independent contractors.

Sep 24, 2010 11:26 AM #21
Rainmaker
876,485
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

Wow, what an idiot.

Smart responsive people have tough enough of a time these days, better that you voted with your wallet and took your business elsewhere. 

Sep 25, 2010 07:31 AM #22
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Rainmaker
482,472

Palm Springs Realtor Stewart Penn

Bennion Deville Homes - Broker Associate
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