RateWatch #366 – Seven Ways to Not Get a Loan
July 27, 2003 by Dick Lepre

What's Happening

The bear market continues to assert itself sending mortgage rates up once again. New Home Sales were at a record in June. Higher interest rates will slowly take this down but the housing market is still one of the brightest spots in the economy. New home sales spawn other economic activity:
appliances, furniture etc. June Durable Goods were +2.1%, +1.4% ex-trans.  This is strong and
supports the proposition that business is starting to spend.  This is necessary for economic recovery.

I can't quite figure out how I managed to get the flu in July but this has been a miserable week for me. Accordingly, I invoke my right to recycle some old material.
Seven Ways to Not Get a Loan

Screw up your credit. 

Do not buy stuff with credit cards and carry balances for long periods.  The interest on most credit cards is too high.  If you push the balances on your credit cards to their limits, you will seriously impact your credit scores even if you make your payments on time.

Don't be late in any payments.  If you do miss a payment throw yourself on the mercy of the creditor and try to get them to immediately remove any record.

Buy 2 New Cars

A couple of times a month I get a loan application from young couples who want to buy their first home but have 2 car loans. If you see a new home in your future, live with a used car for a while.  If you buy 2 new cars make one of them a van because you may find yourself having to live in it.

Change jobs without telling your loan officer

Lenders call your employer a few days before your loan is going to fund to find out if you still work there.  If you change jobs during the loan process, you will likely need a pay stub from the new job as a condition for funding the loan.

Take Advice from the Uninformed About Rates

Several years ago, after a long process of putting together a complicated loan file I called the borrower and suggested that rates had bottomed out and that there was only upside risk to rates.  He said to me:  "My people tell me that rates are going down."  I don't know who this gentleman's "people" are but they sure do not know about mortgage rates. 

Sources of misinformation are everywhere.  Ads that you see in the newspaper have rates that are several days old. Often they quote the 15 year rate (it's always lower) without telling you that it is the 15 year rate.  Some of the phone calls that I hate the most begin with the phrase: "I read in the paper on Sunday that..."

The fact is that we are all conditioned to believe, more or less, that what's printed in newspapers is accurate. Trust the baseball scores,  trust the closing prices of stocks.  For mortgage rates, trust us.

Obtain "Low ball" Quotes from Brokers

I was listening to another loan officer’s conversation with a borrower.  The borrower said he had been quoted a no cost 5.5% 30 year fixed rate loan on an amount of $135,000.  This was, essentially, 1.5 points under the lowest wholesale price I saw today.

It makes no sense for a borrower to make up a story to try to negotiate a non-existing rate, yet folks do it. There are still unscrupulous brokers who make up rates to reel-in loan applicants to either hope that rates drop or later explain that something went wrong.  Hopefully, with time, the Internet will mitigate this.

Decide, Suddenly, to go to Work for Yourself

One of the most frustrating things about mortgage lending is that it has an inherent "distrust" of the
income of self-employed borrowers.  Lenders want to see a 2 year history of income for a self-employed person.  Several years ago I was doing a loan for someone who worked for the Oakland Tribune.  The newspaper "reorganized" and fired everyone as W2 employees and hired them back as 1099 "consultants."  This happened during the loan application process. My borrower had worked there for 12 years and was now making 25% more but was self-employed for only 2 weeks.  His application was denied for lack of a 2 year self-employment history. The point is: before you set out on your own, get your mortgage.

Have No Equity

It is difficult to refinance loans at attractive rates when the loan amount is greater than 90% of
the value of the property.  It is practically impossible to do so when the loan amount is greater
than the value of the property.  Those 125% LTV loans are sinister.

If you are putting down less than 10%, get a loan that you can live with for a while because you may have difficulty refinancing.

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