What it Takes to Get a Mortgage These Days
by Mike Kimel
What it Takes to Get a Mortgage These Days
About six months ago I got a job that required relocation. To make a long story short, we just purchased a new home. As part of the process, the lenders required a lot of paperwork. Not a surprise. But some of the paperwork was surprising. For example, they wanted a signed letter explaining a deposit in the amount of 0.05% of the amount of the loan, made prior to the sellers and ourselves agreeing to the sale of the house. One half of one percent. I can understand getting suspicious if we made an unexplained deposit equal to, say,
ten percent or so of the amount of the loan, but 5% of 1% of the loan?
And it wasn’t the only senseless thing we had to provide.
I worry about this means – it means the lenders probably aren’t concerned about important things that they should be concerned about. That didn’t work out so well the last time.
Um…
($250,000/100) x .05 = $125.
Just guessing at the home cost, but $125 would be the cost of you two taking the sellers out to dinner to seal the deal.
Why on earth…?
Maybe this is the equivalent of the $1 payment which establishes the reality of a much larger deal? Like someone giving their lawyer a $1 retainer?
*puzzle*
Noni – that particular deposit which they specifically asked us to explain was into our account. The concern, in theory, is that we could have been pumping up our perceived ability to pay by putting large sums in our account which we had borrowed from family or friends. I understand that concern. I cannot understand how one random deposit in the amount of 0.05% of the loan would in any way make us look more able to pay back the loan. On a thirty year fixed interest rate, even at current rates, that deposit amounts to well under 10% of a single monthly mortgage (plus property taxes) payment. If that is the line between “we think the buyer can repay the loan” and “we don’t think the buyer can repay the loan” they have no idea what they’re doing.
As with everyone else, what affects our ability to pay includes what other assets we have and whether our existing sources of income (in particular, my job) are secure. It seems to me they focused a lot of effort on verifying something irrelevant when they could have spent the same amount of time looking at things with material effects.
The Patriot Act, anti-laundering laws, IRS regs, Dodd-Frank etc. are making minor banking transactions into minor league nightmares.
My wife and I will be moving back to the states next year. We are in our 30’s, have money in the bank, and may well have our first child in two (or in the oven) by the time we return.
We won’t be buying a house. Why? Because there is no job stability anymore. I have already been downsized once. Countless numbers of my friends and colleagues have as well. I am the primary bread-winner in my family, and my job is not the type where I can just find another one in the next town over if I get laid off or my employer goes under.
Without stability, we can’t buy even if we want to.
Back in 1994, I found a place to put my office and have an apartment for me. I was going to reduce my housing costs and office space cost from $1200/month via rests to $650/month via mortgage.
Until my attorney threatened the bank with stalling because the interest had gone up from what I was promised, I was being told that the “ratios” were not working. I could not make them get it that I would not be having the rent payments anymore.
Mike’s experience is not new, just different.
Mike – That has been standard practice for years. The worry is that you’re “window-dressing” your income with a one-off deposit. Especially in your case–new job, so “historic” records (e.g., last three to six months of bank statements) are not a good indicator of ability to pay going forward–they’ll query everything.
Hmm. So, if you hold a garage sale in preparation for your move, and you take in a few hundred dollars and deposit it in your checking account, you’re suspect. I fully understand. I know the red flags for money laundering when I see them!