Getting financing is tough even for those with good credit
Fifty-five-year-old Warren Burke boasts a stellar credit score, can post enough money for a 20 percent down payment and owns five homes that he rents out for a profit.
But lately, after asking three local banks for loans to purchase another home, the Grand Junction man is getting weary of hearing “no.”
In 2007, the last time Burke purchased a home, he landed a loan by showing he earned $1,800 a month through a retirement account. He plopped down a 20 percent down payment and before the month’s end he was the proud owner of another home. Burke, who had worked for years making a six-figure salary, didn’t have a fulltime job when he purchased his last home. That detail didn’t matter then. Now, he’s told, his lack of employment keeps him from qualifying for a loan.
Burke wishes it were as easy now as it was then to get a home loan.
“All the rentals I have are a positive cash flow, but it doesn’t matter to anybody,” he said on his cell phone while on vacation in his fifth-wheel trailer. “I would like to get another property but I can’t. The only way I can do it is to win the lottery.”
Since last year’s financial market meltdown — an economic downturn domino effect prompted by the subprime mortgage crisis — getting a home loan has become a lot trickier than most borrowers remember. Lending institutions bound by new regulations are asking borrowers to more closely document their cash flow. For the investor who’s no stranger to buying and selling, the inquiries are not always welcome.
“People get very offended, like I don’t trust them anymore,” said Carri Dixon, branch manager of Grand Junction’s Wells Fargo Home Mortgage. “People who have done numerous loans, now all of a sudden we’re asking for documentation. They’re not happy about it.”
In the years leading up to the mortgage crisis, about 80 percent of home mortgage loans didn’t require any documentation, Dixon said. Loans that required proof of income included those offered to first-time homebuyers or loans garnered by veterans or to borrowers seeking the help of government programs.
However, even buyers with lengthy histories of good credit, not a single missed mortgage payment and a penchant for procuring loans can now expect to have their finances scrutinized.
Lenders want to see a minimum of two years of income, at least two work pay stubs and an accounting of any other deposits made into a buyer’s account.
For example, if parents loaned money to a child for a down payment on a home, a lender will inquire into the parents’ financial picture. One lesson learned by the mortgage meltdown was that real estate agents, sellers and others provided down payments for borrowers who had little means to pay back the loans.
“For my people, I tell them right up front they’re going to get picked on for documentation,” said James Pulsipher, vice president of Fidelity Mortgage. “We know that people who don’t make a down payment are three times as likely to default. The changes are just eliminating those risks. Nobody wants those bad loans.”
A year ago, Pulsipher said he’d ask for a month of pay stubs. Now he’ll call an employer a day before closing to ensure the buyer still works there. The increase in legwork has increased labor at his company up to 30 percent. And though fewer people are seeking home loans, an $8,000 tax credit available for first-time homebuyers, coupled with a multitude of local homes for sale at reduced rates, has created a buyer’s market.
“This mostly affects the people who were doing it right in the first place,” Pulsipher said of qualified borrowers. “Our joke is kick us while we’re down.”
As of July 30, lenders are bound by principles under the federally mandated 2008 Mortgage Disclosure Improvement Act, which includes a 3/7/3 Rule. Lenders must provide borrowers an initial estimate of a loan within three business days of a loan application. A buyer can walk away if that criteria isn’t met. Before borrowers can close, they must have seven days to review a good faith estimate and an annual percentage rate (APR) calculation of loan costs. Final Good Faith Estimates, (a document that shows key loan terms and closing costs) and the truth-in-lending disclosure form must be in borrowers’ hands for three days. If the final APR is 0.125 percent different than the initial disclosure, the lender must file another disclosure and the process is extended another three days.
The new rules were instated to ensure that borrowers are not surprised by unexpected fees during closing.
Lenders also are prohibited from collecting any fees, except for checking a credit history, until a borrower has been given the loan disclosure costs.
The new disclosure laws have slowed the process from what lenders used to brag could be quick turnaround to one that’s now expected to be about a 30-day ordeal, said Hal Heath, a real estate broker with Metro Brokers.
“People used to brag they could get a loan in a week,” he said. “I’ve got people going, ‘It used to be easy. Now it’s hard.’ People are getting mad at their loan officers but it’s not their fault.”
Licensed mortgage broker Matt Rauen of Apex Mortgage said, in general, he wouldn’t advise anyone to seek a home loan unless their credit score sits at least 620. However that’s not a set rule. If a borrower’s credit score is lower, say at 600, but that person is prepared to pay 50 percent down and has 20 years of on-time payments, getting a loan may look rosier, he explained.
“Depending on certain circumstances, there are ways around (a credit score),” Rauen said.
In general, qualified borrowers accustomed to nabbing loans are the most put out when asked to show all their finances.
“Especially when we’re talking about a customer that is used to a certain amount of privacy.
They have a lot of a money that they’re private about and all of a sudden you ask for two years’ taxes. That really scares people,” he said.
Rauen said he doesn’t think the changes will keep qualified borrowers from seeking loans.
What has changed, he said, is unqualified people are not getting loans.
“The good thing that’s going to come out of this is that the person buying is going to have stronger home ownership,” said Fara Dyer, managing broker with RE/MAX 4000.
A drastic slowdown in the home buying and selling market has slowed business by 50 percent, forcing real estate agents to either leave the field or question their loyalty to their work.
“We’re not in the same market we were a year ago,” Dyer said. “There’s an old adage, it’s a price war and a beauty pageant. Even then (a home) could take a while to sell.”
Dyer thinks the market will regulate itself after “people have a sense of stability again.”
A buyer’s market is what prompted Debbie and Ed Hatch to pursue dreams of moving from Clifton to the Redlands. When the price came down about $100,000 for a Redlands home that had been on the market for a year, they jumped at the opportunity. However, their newly remodeled home at 636 Colony Roads that the couple purchased when they were 20 is still for sale four months after they moved into their new home.
Getting a home loan the second time around for a closing in May nearly derailed at the last minute. A day before closing, FHA (Federal Housing Authority) needed to see more equity in the Hatchs’ Clifton home before allowing them to get a mortgage on their new place.
Ed Hatch quickly paid down that loan with a $5,400 payment, enough to satisfy the requirements. The quick thinking worked and now the couple enjoy views of Liberty Cap in Colorado’s National Monument and generous lawns that edge the wide streets.
“We’ve always paid our bills and taken steps we need to finally get to our goals,” he said of their financial philosophy.
“You’ve got to do it the old-fashioned way. You don’t want something you’re going to struggle with.”