Is credit lending still tight?

[CA renter]

Doesn’t that seem silly, though? That’s the best guarantee of maximum return of the lender’s money in the event of a default, no?

[jeff303]

[quote=HLS]
They always use the middle credit score of the 3 bureaus, the highest & lowest are ignored.
If 2 people are needed to qualify, the use the lowest borrower’s middle score.

In many cases this presents a problem, but if a borrower’s income is not needed to qualify I suggest considering only 1 person on the loan, spouse can still be on title which is the ownership part.
[/quote]

Are banks willing to run both scenarios for comparison? I.e. add spouse onto loan (higher income, lower credit score) versus not?

[poorgradstudent]

[quote=HLS]Approvals don’t care about how much debt you have, they only look at minimum monthly payments on a credit report.
Many people are not aware that they can raise their credit scores relatively easily & quickly.

[/quote]

It’s kind of scary how easy it is to manipulate the numbers if you plan ahead. For example, most student loans offer a variety of payback plans. One option is graduated repayment, where payments go up with time, under the assumption income will improve. So even if the payment will be more like $200/mo over the life of a mortgage, it can look like $100/mo to the lender if that’s your current monthly minimum.

Shuffling credit card debt onto 0% interest cards also lowers the minimum monthly payment, since most CC’s use a variant of Interest Accrued During Billing Cycle + X% of account balance. Of course shuffling debt can negatively impact a credit score in the short run.

The way income is counted is weird and somewhat frustraing as well. In particular it’s annoying that “contract” work isn’t counted, even if it’s a 6 month contract that has been renewed every time for the last couple of years. Considering California is an At Will employment state, to me it would make more sense to look at income history rather than current employment status and salary.

It’s a messy system that can be manipulated, but brokers legally aren’t supposed to coach you through how to pull some of the levers.

[joec]

If you’re self employed, I think you’re also required to use “net” profits now as income. That makes it so you now may not qualify if you want to minimize your taxes in a given year…Want to contribute to your retirement? Maybe skip it a year to jack up your income to qualify for a refi…

HLS, are you seeing non x-corp business owners getting many mortgages/refi’s in the current environment?

I think it’s all like this because every bank is trying to sell the loan back to fannie/freddie. Since they set the rules, they do whatever they require. If banks held the loans like maybe 30 years ago, then the guidelines would be more varied I’d assume.

Does any institution even hold loans anymore?

[spdrun]

^^^

Commercial lenders and small local banks. Here’s one example:

https://www.valleynationalbank.com/Business/Lending.aspx

[an]

[quote=joec]If you’re self employed, I think you’re also required to use “net” profits now as income. That makes it so you now may not qualify if you want to minimize your taxes in a given year…Want to contribute to your retirement? Maybe skip it a year to jack up your income to qualify for a refi…[/quote]I thought self employed people don’t have any more tools to minimize their taxes compare to W2-er?

[joec]

If you look at my old posts, you can see I did say self employed can put more in retirement. That said, for a W2-er, your paycheck is your income. For a self employed sole proprietor, your revenue isn’t your income.

AN, you should just start your own thing and see how it goes…

[an]

[quote=joec]If you look at my old posts, you can see I did say self employed can put more in retirement. That said, for a W2-er, your paycheck is your income. For a self employed sole proprietor, your revenue isn’t your income.

AN, you should just start your own thing and see how it goes…[/quote]I did and will do so again for the exact reasons I’ve been saying. Thanks for the suggestion though.

[HLS]

[quote=jeff30]
Are banks willing to run both scenarios for comparison? I.e. add spouse onto loan (higher income, lower credit score) versus not?[/quote]

I don’t know what ‘banks’ do. I don’t work for a bank. I work for a borrower and do this to figure out what is best for the borrower.

Banks have divisions that are mortgage brokers.
They generally have the exact same automated approvals but may not have the best price OR service.
There is a huge misconception about what ‘banks’ do.

[HLS]

[quote=poorgradstudent]

It’s kind of scary how easy it is to manipulate the numbers if you plan ahead.

It’s a messy system that can be manipulated, but brokers legally aren’t supposed to coach you through how to pull some of the levers.[/quote]

It IS easy to manipulate some things but not income. Tax returns, pay stubs & W2’s are usually
required except for some programs.

Do you have a source for stating the legality of a broker coaching you OR did you make that up ?

[HLS]

Income is figured before retirement contributions.
W2 salary is prior to deductions.
Schedule C is similar.
Generally if you own more than 25% of a corporation, the K1’s & 1120S are required to be submitted as well as 1040’s

Most approvals are automated. Very rare to have manual underwriting now. Maybe some exceptions.
I don’t think that many institutions hold many loans for 30yrs these days, 10yrs or less perhaps.
HELOC’s do not have the same risk exposure; usually tied to the prime rate.

[svelte]

[quote=jeff303][quote=HLS]
In many cases this presents a problem, but if a borrower’s income is not needed to qualify I suggest considering only 1 person on the loan, spouse can still be on title which is the ownership part.
[/quote]

Are banks willing to run both scenarios for comparison? I.e. add spouse onto loan (higher income, lower credit score) versus not?[/quote]

In assisting another family recently, I can tell you for sure that a major bank recommended just using one spouse on the loan app, but the couple used both anyway. They were rejected.

They then resubmitted to the same major bank with just one spouse (both still on title) and were approved.

[jeff303]

That’s interesting. My question to HLS was admittedly a naive one, but it seemed to touch a nerve. Anyway, what I’m really trying to figure out is, how can a borrower determine which scenario is better for them? Is it possible to work with someone (buyers agent, bank, other lender, whoever) who can “run the numbers” on both scenarios relatively easily? Or does one have to apply for two different loans in order to see the difference?

[svelte]

[quote=jeff303]That’s interesting. My question to HLS was admittedly a naive one, but it seemed to touch a nerve. Anyway, what I’m really trying to figure out is, how can a borrower determine which scenario is better for them? Is it possible to work with someone (buyers agent, bank, other lender, whoever) who can “run the numbers” on both scenarios relatively easily? Or does one have to apply for two different loans in order to see the difference?[/quote]

Talk to a loan officer. They’ve dealt with underwriters enough that they’ll be able to tell you which scenario is most likely to result in approval. They’ll also be able to tell you what parts of your documentation are solid and what could potentially cause problems.

Of course, nothing is guaranteed as the loan officer and the underwriter are intentionally partitioned off from each other – for good reason.
The only way to know for sure is to submit something and see what comes back.

[Author]

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