I just helped my cousin get a 150K mortgage. He makes about 50K, excellent credit score, minimal down payment, 5%. He just bought a new car, financed, probably underwater. He has paid off most of his credit card debt, but still has a little left. He pays $400/month in child support.
He had his pick of mortgage lenders. People were dying to loan him money.
This really pissed me off. Not that I didn't think he deserved it, he did. But if he deserved it, so did we! Sure, he has a W2 today, but he might not tomorrow. Why does he get a mortgage and we don't when we have been so much more responsible?
It was nice to know enough to help him, but that knowledge was hard-won with idiot mortgage brokers. I'm still irritated we don't qualify. It felt like a slap in the face.
Tough Money Love (who has never made a mistake in his life) posted this preachy nonsense about how common sense has come back to lending because one bank refused a guy who couldn't afford an unsecured personal loan. Whooptie do.
How does common sense even enter modern lending? Banks follow the rules blindly, and the rules are made far away by nameless politicians and billionaires. The rules work for most normal people with normal W2 lives. But if you don't fit in the boxes, like a small business owner or a foreigner with no credit score, too bad. Rules are rules.
The bank enters the numbers into the computer and it spits out a result. There's no common sense or human judgment of any kind. At the moment, the rules require your business to have two years; 1 yr 7 months won't cut it. Computer won't allow it, sorry. The part about how we paid off Sallie and our cars doesn't even count in the computer. Is that common sense?
Wednesday, June 17, 2009
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7 comments:
Why do you say you have been "so much more" responsible than your cousin? Has he done anything wrong other than having "just a W2 life"?
Do his sheets and towels match? Silverware?
Sorry... could not resist. Maybe he can invest in those once he is more established. ;oD
Dog - Thanks for the link (I think). I concede that I get preachy about credit score obsession. Also,I have made plenty of mistakes. I just think that people who read my blog can learn more from the things I have done right. Speaking of which, I have a suggestion for your situation, based on one of the things I did right when I started my small business. Your husband should organize his business as an S corp, C corp, or LLC and then set himself up as an employee who receives a regular salary and bonuses. Lenders love that W-2 even though it may be putting form over substance. That's what I did 17 years ago and was able to get a new mortgage immediately based on my personal balance sheet and a few employee-style paystubs. There are many other advantages in creating a more formal structure for the business as well. Look into it and good luck.
We have an LLC and an accountant. The business has always been separate. In his business, there's often lag on when he gets paid, and it all comes in at once. We have a good idea of averages, but not when the money will show up.
Besides, I'm over it now. I'm ready to just upgrade the rental for a year.
Have you tried a local credit union? I have found them to be actual people with an actual bank president (that you can talk to) who actually looks at the numbers. The nameless banks and even my mortgage broker were ultimately useless when it came to my most recent purchase. The credit union was lending its own money - and was not going to resell the loan - and had actual, real money that it was actively looking to lend to those folks that needed it. (and, btw, I still bank at Chase, despite their unwillingness to loan me money)
But 'checking the box' to reform the LLC as an S-Corp will allow you and your husband to get a paycheck and get a W-2. Talk about it with your accountant and attorney.
A slow turnaround of accounts receivable is not a reason to stop Senor Dog from issuing himself a W2, unless your A/Rs are from high-risk customers or something. A/R is enough to secure a working capital loan, which is designed exactly for the purpose of covering regular overhead costs until the A/Rs come in. Consumer lender may have robot brains, but commercial lender are always active and engaged, imo.
Why'd ya have to slam Tough Money Love??? That guy is great.
How did you find out what your cousin qualified for? Did you have a resources of mortgage lenders you asked, or did you just go to your bank, or did you do some online thing? I am thinking about buying a place, but I am confused about how to start and find out what I qualify to buy. Thanks for any help
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