Things have gotten so strict in underwriting mortgages, that not even rich people can easily get a mortgage. I think most of us would agree if we had millions of dollars and no debt except for the mortgage on our home, we’d feel rich. In fact, we would be rich. But even rich people have to meet the same underwriting standards that the rest of us do, there is no special treatment for anyone.
I can recount several recent stories that help to illustrate this:
1. I had a client who was co-signing a loan for his daughter who was buying a small condo. The loan was modest, the daughter had 20% down payment, and good credit, and had a co-signing father who made a lot of money. The father had a lot of assets. The father owned a small hotel chain. Loan denied. The father also had an enormous of debt, and the daughter made very little money. When told his daughter was not able to get a loan even with his co-signing, he loudly proclaimed, “I am not trying to buy the damn White House!” I omitted a few expletives, in case there are young eyes reading this blog. He was much angrier than the above suggests.
2. I had a client who had over $2,000,000 in assets, and wanted to refinance a $600,000 mortgage. These clients were retired, and had no large income stream anymore. They had social security, and some dividend and interest income they earned from their assets. They had decided to live in their home another 3-4 years, to stay close to their children through their college years, and then they’d downsize to a smaller house. With a home worth $1.2 million, and only owing $600,000, they stood to easily net $500,000 after Realtor commissions, taxes and other expenses. They are going to pay cash for a smaller house down the line in 3-4 years. However, they’d like to refinance now to get a lower rate and save money for the next 3-4 years. This sounds like a low risk loan, yes? But their income is not enough to meet the income needed to satisfy the banks. You would think with $600,000 in equity, a 50% loan-to-value, and over $2,000,000 in assets, that some bank would find a way to make this loan. But I could find no lender to do their loan, and the clients also tried credit unions and local banks they knew, also to no avail.
3. I recently had clients approach me to refinance a $700,000 loan, on a house worth $6,000,000. And, they had over $6,000,000 in assets. However they were retired and only had modest income streams. This should still be a no brainer, yes? No. The mortgage industry does not care about their significant equity or their immense assets, no one will make this loan. They simply don’t show enough income to demonstrate they can make the payments from their income stream, and banks usually don’t trust people to make payments from their assets.
I don’t expect anyone to feel sorry for the “rich”, but its a good illustration of how difficult it now is to get a mortgage. The bottom line is that if the mortgage lender does not think the loan makes sense, if you don’t show enough income to qualify, if your debt ratios are not in line; nothing else really matters and you will not get your loan approved.
As always, it is imperative to speak to a mortgage professional first, have a thorough discussion of what you are qualified for, and then proceed in looking at real estate to buy or to refinance your mortgage.
Tags: strict underwriting