This month, I want to cover a very important topic that could potentially save some people from a lot of wasted time and money, and from a great deal of unnecessary stress and heartache. The topic revealed itself to me through a series of unfortunate stories shared with me by several colleagues in the lending business. The topic I’m referring to is today’s money lending/borrowing landscape, and more specifically, how vastly different the rules, guidelines and qualifications for borrowing are today from what they were five years ago.
I am actually going to dedicate two articles to the topic of today’s borrowing environment. This first one focuses on how today’s new guidelines affect personal lending and borrowing for virtually anyone seeking to borrow funds. Then, I will do a follow up piece on how the new lending landscape specifically affects business owners and investors.
Have you tried to get a loan lately?
If you’ve mortgaged a home or borrowed any significant amount of money in the last five years, you’re already aware that getting qualified and approved for a loan is a far more difficult, complex, rigorous and time-consuming process than it was just 5 short years ago. If you have borrowed money recently and you did survive the turbulent waters of requirements and documentation, let this information serve as a friendly reminder to think and plan ahead. But, if like the borrowers in my colleagues’ nightmarish stories, you have not tried to qualify for a mortgage or some other kind of loan in the last few years, consider this information your warning!
Remember the good ole days of borrowing and lending?
It seems like only yesterday (it’s actually been a little over 5 years), getting a personal loan, or even a mortgage, was about as easy as checking out a library book. If you had a name, a paycheck stub, and a W2, you were pretty much good to go. And there were all kinds of lending options to fit almost anyone’s income and individual needs. Although it was easy to borrow money, we all know what happened when it all came to a head in 2008.
Borrowing today is much more difficult
Today, borrowing feels more like getting a full physical exam, and I’m talking about the kind of exam that requires the rubber gloves and Vaseline (if you know what I mean). A proven, steady income and a good credit score are just the top layer of qualification requirements. Regardless of your income, your assets, or even your borrowing history, everyone is now required to go through a much more cumbersome, complex and time-consuming process that includes a full financial transparency and disclosure. You’ll have to provide full tax returns, itemize all assets and liabilities and produce stacks of documentation to prove that every item is accurate – to the penny. And, you know all of those tax write-offs that lower your taxable income? They also count as losses against your income during loan processing and could hurt your chances for loan approval – or at the very least, affect the rate and terms of the loan.
I’m not drawing this dark picture to scare anyone or to discourage anyone from applying for a mortgage to buy a new home. I’m simply trying to bring attention to the fact that if you haven’t tried to get a loan in the last five years, things have changed—a lot. And I want to emphasize the importance of preparation and planning. For example, if you know you’re going to buy a new home in the next couple of years, you might choose to reduce the amount of your tax write offs until after you’ve qualified for your mortgage. If you think ahead and become proactive, you can improve your chances of qualifying for the best loan options and minimize loan-processing hassles.
Remember my colleagues’ nightmare stories about their clients that I mentioned at the beginning? Well, each nightmare was basically the same story. The victims (all of which had good jobs, incomes and credit histories) had bought and sold many homes before with ease. They were unaware of all of the new requirements and guidelines for mortgage approval. Each of them sold their current homes before they had looked into buying a new home. Once they signed the contract to sell their homes, there was no turning back—buyers can back out of contracts, but sellers can’t! When they went to buy a new home, for various reasons they could not meet the requirements to qualify for a mortgage. They all ended up having to rent housing for a substantial period of time until they could meet the qualifications.
So, here’s my advice:
Before you list your home for sale, before you start looking for a new home to buy and certainly before you sign a contract, get with your financial advisor and your lender and do some planning. Your lender can tell you the qualification and approval requirements up front, and your financial advisor can help you make adjustments and preparations that play in your favor during the loan application process. In some cases, you don’t have the luxury of a lot of planning time. But, the sooner you know you’re going to borrow money or take out a mortgage, the sooner you can start preparing for it and the better off you’ll be in the long run.
Patrick Stoy has 15 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.
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