If you want to buy a house in this still strong housing market, know that it’s hard to get a mortgage nowadays. The lending market is incredibly tight and only borrowers with the best credit are getting the best rates. Further, mortgage rates have risen substantially since the beginning of 2022, making affordability more difficult as well.
Personally, I’ve got over an 820 credit score and have over $10 million in investable assets. Even still, I’ve had rough times getting a great mortgage.
I shared with you my most recent painful journey in qualifying for a mortgage. It’s not over yet as the underwriter now wants a signed copy from my CPA on his company letterhead of all my company’s financials.
My CPA said he charges $3,800 for a thorough audit, so I told him to go jump in a lake. Instead, I sent off my company’s financials with my signature and told my bank to take it or leave it. I think they’ll take it because I’ve fulfilled every single item on their 21 point check list. We shall see.
My mortgage pain post was shared around the web and I ended up having a good dialogue with a loan officer. He shared with me some frank insights as to why it’s so hard to get a mortgage nowadays.
If you are easily offended, I suggest skipping this post. But if you can handle the truth, and if you want to gain some perspective from someone who controls millions of dollars in loans to satisfy property buyer’s wishes, then read on.
WHY IT’S SO HARD TO GET A MORTGAGE NOWADAYS
I’ve paraphrased the mortgage officer’s feedback in order to make our dialogue a readable post. Here is why it’s so hard to get a mortgage today according to a mortgage officer.
1) The government is clamping down hard.
Since 2009, the government has created enormous regulation for banks in order to not repeat the housing crisis again. For example, the CPA letterhead and signature requirement was introduced recently in Feb, 2014, and it’s causing massive headache for tons of small business owners in America. CPAs are charging usurious fees to audit because they can. Meanwhile, the government makes us send a new 7-10 page Good Faith Estimate every single time we change a single number.
The rules were created by the Consumer Finance Protection Bureau and were mandated under the Dodd-Frank Act to ban many of the loose practices during the housing bubble e.g. NINJA loans. To be considered a qualified mortgage, a loan amount cannot exceed a total debt-to-income ratio of 43%. In the past, plenty of borrowers were up to 70%+ . Average mortgage refinance or new mortgage lengths have doubled in the past four years as a result.
2) We don’t want to get burned again by liars.
Borrowers signed a contract stating they’d pay their mortgages on time if we lent them the money and many didn’t. If everybody just paid their damn mortgage, this economic downturn wouldn’t have happened in the first place!
Where I come from, if you don’t pay back your debts, you get beaten up, shamed, and thrown in jail. Only in America do people save so little, borrow so much, and have the audacity not to pay back a person or institution who lent them money in good faith.
Just think about the responsible homeowner who paid her mortgage every month during the downturn. Why should she suffer because her neighbor decided to welch on her promise? Good and honest people got screwed and they should be angry at their neighbors, not the banks who also got screwed.
Borrowers who lied to us got bailed out with mortgage debt forgiveness programs by the government. Borrowers like to point out banks got bailed out too. But guess what? I’m a person, not a bank.
3) We hate ungrateful borrowers who don’t take responsibility.
Nothing pisses loan officers off more than an ungrateful borrower who defaults on his mortgage and turns around and blames us for not paying his mortgage! We’re already getting blamed by our managers for approving bad creditors.
Blaming loan officers for why you can’t pay your mortgage is like blaming your university for you not paying back your student loans. Imagine suing your company for letting you go because you no longer wanted to work. We’re infected with this entitlement mentality that must be squashed. Borrowers should own up to their financial mistakes and stop blaming others.
Borrowers who defaulted already punched us in the gut by causing mortgage departments to lose money. Loan officers were laid off in droves as a result. We have families to feed and bills to pay too.
My income got cut in half, and I was let go in 2010 due to the downturn. It wasn’t until 2012 when I found a similar job again that paid 25% less. Now in 2022, mortgage applications have plummeted and the industry will once again go through cuts. Thanks a lot.
4) We laugh at anybody who doesn’t have at least 20% down.
The biggest joke is when borrowers start getting all pompous with us about why we should lend them money – as if it was our privilege. Then they tell us how they can only put down 5% and we laugh and laugh and laugh at the craziness.
Borrowers who can’t put down at least 20% have no business buying a home. One job loss or economic downturn and they are finished. Go get a first time home loan from the government and milk them for all they are worth instead. The 30/30/3 home buying rule by putting 20% down and having a 10% buffer is very wise. I hope more people follow it!
Paying private mortgage insurance (PMI) is stupid. They might as well borrow money from a friend to borrow more money from us and never take ownership of their financial lives. It’s as if nobody learned their financial lesson from the past five years.
Most will turn out OK in the end, but there are enough people who can put over 20% down that we don’t bother with the rest. Save more money people.
5) Owning a home is not a right, but a privilege.
I don’t know where people got it in their heads that owning a home is their birth right, but it’s not. The people who keep paying their mortgages through hell or high water are the ones who understand their privilege. They saved up, ran the numbers, and committed to a long term arrangement.
They view their home as a home first and not as an investment. If everybody can view their home as a home first, there would be much less volatility in the housing market.
Some of the people who haven’t paid rent in 18+ months make us sick. They are screwing the small mom and pop landlord who continue to have to pay their mortgage and maintenance expenses.
Is it any wonder why well-qualified buyers are getting the best rates? Of course we’re only going to lend to those who have the best credit scores and the least amount of debt.
If you want to refinance a mortgage or take out a loan today, it’s best to pay a small mortgage fee than receive a large credit. But not, so many borrowers think we’re evil for earning a fee. Yet, they don’t understand the financials of mortgage lending and are hurting themselves in the process.
THE FUNDAMENTAL QUESTION FOR LENDER AND BORROWER
“If you lent someone money in good faith and they decided to NOT pay you back, and then they decided to tell everybody what a crook you are for lending them money in the first place, would you ever lend them money again?”
OF COURSE NOT!
We no longer want to lend money to the average Joe or Jane because the average Joe or Jane screwed us BIG TIME. Anybody who went through a short-sale or a foreclosure are permanently on our blacklist. We won’t tell them this out of courtesy, but that’s just the way things are now.
We’re only going to lend money to people who don’t need to borrow money. They’ve got plenty of liquid assets to pay cash and high incomes, but they don’t want to pay cash because they want to remain diversified and borrow money for cheap.
IMPLICATIONS FOR TIGHTER LENDING STANDARDS
If we only lend money to people who don’t need money, then we decrease our non-performing loans, decrease our chances of getting a pay cut, and decrease our chances of losing our jobs. Furthermore, we don’t have to listen to backlash from the public for why we caused people to default on their mortgages.
We think it’s a good thing to populate the housing market with people who can actually really afford their homes. The downturns will be less severe, and less people who’ve been paying their loans will be hurt by those who don’t.
I asked this one borrower why he decided not to pay his mortgage for a whole year since he had a steady six figure job. He said, “Because my home is under water, so why waste money?”
He then turned around and said, “Banks are evil anyway.” I wanted to punch that guy in the face. Just because he lived in a non-recourse state doesn’t mean he should just walk away and screw everyone else in the process.
Maybe America will be at risk of being a nation of renters, as stated by Wells Fargo CEO, Richard Kovacevich. But is that so bad if the alternative is a nation of homeowners who are at high risk of defaulting on their loans and causing everybody massive financial pain?
I would much rather have only responsible people borrow money, not entitled and irresponsible people who stretch to buy way more home than they can afford.
DON’T BLAME LENDERS FOR THE HOUSING CRISIS
We loan officers have empathy for people who lost their jobs or experienced extreme loss during the last downturn because we lost our jobs. If it’s between feeding your family and paying your mortgage, feed your family. Just don’t blame us for the housing crisis if you can’t pay your bills.
Blame yourself and other people who promised to pay their bills and didn’t. We did the best we could with the information we had at the time to make your dreams of homeownership a reality.
You think just because you make this much money and have that much in assets that you deserve a loan? News flash. This is OUR money, not yours. If you want to borrow our money, then do what we ask. If you can’t, go somewhere else.
Some of those who leveraged up to buy real estate during the pandemic mania will likely lose their homes. That’s the nature of the beast. We just don’t want to lend to those people.
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Why It’s So Hard To Get A Mortgage Nowadays is a Financial Samurai original post.
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There was predatory lending. I was told by them that I could not buy a house smaller than the one I was selling. They wouldn’t allow it. Unbelievable. I had reasonable credit, yet every lender I talked to wanted me to sign for a balloon loan. Of course I did not, because I could see by the balloon payments that I would not be able to pay them in the future and refinancing is not a guarantee. So I held out. It took years to get a conventional loan. I did end up being coerced into buying a slightly larger home, even though I didn’t need it or want it. When I think of how many lenders tried to ruin my credit by trying to coerce me into balloon loans, I get really angry. Shame on them. Most people in my position would have given in, and many did. Millions of Americans’ credit was ruined and they lost their homes because they could not pay the outrageous balloon payments. Now I know that like you said, some borrowers took advantage and got an attitude with lenders and didn’t pay back. But, I just want you see how gamed the system was.
Also, banks were bailed out well. I hear you saying that people are not banks, but why should banks be treated more humanely than individuals? Most people who had foreclosures between 2008-2014 did it because they had no choice. You say some withheld payments as an attitude, but that would only shoot themselves in the foot by ruining their own credit, so I don’t think there were very many like that. Those kind wouldn’t necessarily need to borrow in the first place. Just my opinion. It was a very embittering time, lives and livelihoods were sorely ravaged. So I’m sure there are many different opinions on this.
I remember back in the day, a tribe or village would come together and help build a home for a newly married couple and their family to be. These people would then contribute to the tribe or village in some way — maybe farm or make things. No one called it a privilege to have a place for your family, your possessions and shelter against animals and bad weather.
Nowadays, you’ll never become as rich as your loan officer who treats you like a dirty peasant to afford that astronomical prices of land/shelter.
Well, the one good thing is you can become a loan officer and then you too, can dangle “privileges” above the heads of dirty peasants while getting rich off of mortgage rates and interest.
Just so you know, I don’t think loan officers make that much money. It is an hourly position, at least at the credit union where I worked long ago. My dad used to say no one gets rich in banking. Other careers are more lucrative.
Thank you Nancy Pelosi and the dems for saying home ownership is a right not a privilege and creating the housing bubble by mandating that the banks give a loan to anyone with a pulse. We are trying to get a HLOC on our house now, just for an emergency. We are not small business owners, we work for a fortune 20 company. And make 5 times the average household income with ZERO debt including 2 homes. You would think we work part time at Walmart the way they are treating us. It is going on 6 weeks and every week it is a new demand. And many times it is the lack of knowledge from the officer that causes the problem, for when I call the manager they say, “oh you don’t need that” or here is a very simple document to sign you do not need to send us your life story starting at the age of 6. It is a joke. I would get it if we did not have a near perfect credit score, zero debt and large accounts.
It’s good to know that to qualify for a mortgage, the loan amount can’t exceed a debt-to-income ratio of 43%. My wife and I would like to purchase a home so that we can start our family, and to do so we’ll need a loan. We’ll be sure to look further into our options for loans that won’t push us beyond a 43% debt-to-income ratio so that we can get approved for a mortgage.
My recommendations is to go through your local credit unions before banks. Save money for a decent down payment.
This post has good points to consider but it definitely screams childish and makes the banks and lending agents seem like they didn’t have any fault in the housing crisis. While I do agree that people were borrowing out of their means, that shouldn’t take away from the responsibility of the bank to know that they are one catastrophe away from defaulting if they give them a mortgage that consumes most of their income.
Borrowing the same analogy this dude used with universities, schools are responsible with the classes you take. They don’t let you sign up for theoretical physics before you’ve taken a basic math course. They prepare you. They are being responsible in that matter. Banks knew this would happen but the downside of a homeowner defaulting is that the bank keeps the home. Doesn’t sound so terrible for them, does it? Not much of a risk there for the banks.
I personally know of a loan officer who walked away during the crisis because they knew what they were being asked to do was wrong. In the same manner that this post asks for clients to be more responsible, they should be too. Loans are tougher now as a result to protect the consumer from the banks. Think about that. Save up for your down payment, treat it as a home like they mentioned. Those are good points. Most important, live within your means.
On another related note, fix the FHA program. First time home buyers will want to buy a cheaper home, many of which will need some sweat equity. Having rules for homes that prevents FHA borrowers from buying a home in not perfect condition further prevents clients from getting homes within their budgets. Condos can’t be purchased using FHA if half of the complex is rentals. Why is that? What does that matter to a first time home buyer? And why do they have to be vacant for 90 days? Most homes sell within that time frame. Then this guy laughs at people who try to use government programs to buy a home when the programs themselves are extremely limiting.
I’ll answer a few of your questions. Condo projects that are >50% rental incur more costs for the condo association, and as a general rule renters don’t take care of properties as well as owners. So there are risks to the association (and thus the lender) as well as to the overall property value stability.
Second, the bank getting the home after a default (especially in a non-recourse state, which you should look up if you’re unfamiliar with the term) is not a good deal. Banks are in the business of lending money and other financial services, not asset management and real estate. They very often take a loss when foreclosure happens even after taking possession of the home, often the homes are trashed, they are also subject to market downturns, they have to pay a significant cost to own the property (taxes, lawn, insurance, utilities, etc.), and they pay significant costs to sell the property.
FHA loans, like VA loans, have more stringent property condition requirements because again, the government isn’t in the business of managing property and they are not there to help people with financial gain, but to provide housing. So to them, lending on a property at 3.5% down, if that property isn’t good collateral, is a terrible risk to take (and the government isn’t supposed to take those risks…that’s WHY the private sector does). Further, lower down payment mortgages have higher monthly costs, leading to higher default risk. Sorry, but that’s how the world works.
I don’t know what you mean that FHA properties have to be vacant for 90 days, so I can’t address that.
Forget buying is too much hassel, and your chamcea get approved is minimal to zero. So many people just renting with option to buy. Soo much easier and quicker, and not deal with the shadyness.
Trying to get a mortgage is ridiculous. You can’t get the lender’s to call you back, they wait 30 days and then have to pull your credit again, tell you if you live in the house you are purchasing it will cost you more money on a down payment. You can walk on a car lot and ride off in a $60k car that depreciates as soon as you drive off and they don’t blink an eye about giving you a loan, but on a 60k mortgage, you have to offer your first born child, give blood, and it is utterly ridiculous. They tell you to apply to more than one bank, it will not hurt your credit, the credit companies know you are searching for a good deal…….RIGHT! Also, why are there three credit companies with three different scores and they want to find out which one they want to use to screw you over. I am so over banks. It is pretty evident others are too, many are closing!
I can’t believe these people. Democrats pushed this loans should be given to the poor even if they can’t qualify, many of them like Mad Maxine Waters were getting rich of of these risky loans and were told it was serious problem and they laughed. Now they are telling us all it is a privilege? So after the this mess went down. Mad Maxine and Pelosi made millions, and are still creating bad policy and who’d they blame? Small business. This is an absolute joke. They have created a huge housing bubble. A loan should not be so hard or so untransparent. It should be clear and understandable but I can’t make heads or tells of FICO nor the loan industry. I think once people stop buying into the bs the banks will have to start changing their tune or face bankruptcy.
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I found the perfect home, new construction, affordable housing program, and it’s 210K. Not much!
Lender will only give about $165K as taxes are about 4400/year and HOA is 135/month and HO insurance is only $50/month.
I can finagle another $1,000 income per month but don’t how best to formerly prove it in documents. I can also show that I earn more under esteemed professional means but since it’s across state lines — not sure how best to proceed. My agent is willing to do whatever I need.
Help me figure this out!