Should I be upset with my lender?

Question

Without going into too much detail, is it normal for a lender to cause you to have to push back your closing date because they couldn't get underwriter approval on time?   I feel like they are having me scramble now to show transactions between accounts of mine, which is something that could have been done sometime in the past 6 weeks while I was under contract.

Chris Mason · Answer

Yup, that could be doable.

If it was an all cash purchase, it'll have to fall under "Delayed Financing." That means the above level of scrutiny applied to the funds you used to purchase the home, alas.

If it was a purchase using a mortgage (even a private one), it'll be one of two things:

- A refinance using purchase price as the value, meaning $225k on a $300k property (you are nudged in various ways to wait 180 days from mortgage to mortgage... this is one of them.)

- A six month wait before you close on the refi, using the then-current market value of the place.

One thing I will note is that a refinance is a decent way to sort of test the waters. If it doesn't pan out, you haven't lost the house. If it does pan out, you will know what it looks like on a purchase, with the caveat that purchase deals almost always have faster timelines. The person who does this refinance will also already have what she/he needs to do the mortgage on your next purchase, for the most part, and will be able to allow you to write more aggressive offers than would normally be possible for someone with finances as complicated as yours.

Sarah Ziehr · Answer

Yes, I would be irritated.

Just curious, was this lender someone you choose or someone your broker suggested?

Michael Jones · Answer

Chris Mason  Yeah I've stayed away from lending for listening to too many horror stories of how the documentation is insane.  But I haven't gone through the process.  The way you've explained it, I think, though it'll still be a pita I shouldn't have too many problems. I've maintained a bank account that is only for business and can verify the transactions and can show decent honest tax returns.  I think the big issue I need to get through is to maintain higher (non working for me) funds for a few months in the bank account.

Final question(s).  I just bought a house 6 weeks ago and will be putting a renter in it in 3 weeks.  So, I go into the bank/credit union to get a loan, does it count against me if they say no I need to hold the house for a few more months?  My scenario: bought for 300K, putting 45K into it and want to pull financing for 270K.  Value 430-460K. Rent: $2475.  Would like to pull money back out the soonest I can. Thoughts?

Michael Jones · Answer

@Chris M

Please expand on this. I haven't gotten a loan since 2004.  I know it's changed a lot but what I can't figure out is how does underwriting work in regards to self employed investors.  I have thousands of dollars moving on a consistent basis.  My account may have 200K in it today and then in three weeks might be down to 20K.  And it might be just a few transactions or it might be several smaller transactions to pay for contractors etc.  I just can't stop working my plan so my bank account doesn't have activity.

How does the lending community deal with people like me?  Or a better question is how do I set up for a smooth transaction as I'm just now starting to seriously investigate holding rentals with bank lending.

Ryan Moore · Answer

Chris Mason

I get what you are saying.  In my case, during the final week before closing they are asking me about money I moved between Fidelity and my personal bank account.  This money movement occurred before I even went under contract for the property and got any kind of approval.  They were waiting for some other money to season in my personal bank account, but I made no other random big deposits/withdrawals since then.  It just seems to me that they waited until the last minute to really look over all the numbers that were always there to look at, then making me scramble to get statements and transaction printouts, etc.

Chris Mason · Answer

Hi Michael,

So the first thing I will say is that I agree: lending has changed a lot... the pendulum was in one stupid extreme in 2004-7, it's at the other stupid extreme now. Complete 180 from how stupid easy it was to get a loan last time you did it, now it's stupid hard for stupid reasons.

Re: Your account that'll go from $20k to $200k. In theory if it's an intelligent underwriter AND consistent with your business, it will not be an issue. In practice, it's best to NOT commingle your house buying and other funds, so that your lender doesn't even need to look at that account. If you've got $180k in deposits in a single day, on a regular basis, your time is too valuable to waste with current BS guidelines on tracking deposits and all that.

We aren't going to be looking at bank statements to verify income, so the account that your business income goes into... we don't need to see it.

What we do need to see is two bank statements of an account that has sufficient cash to close and PITI reserves (assume 6 months per property), that at no point while in escrow dips below the cash to close + reserves number. All large deposits during that two bank statement cycles will need to be fully sourced, papertrailed, and accounted for. Hint hint, nudge nudge. I've got a "sanitary" account, myself, for this purpose, at a bank that this is my ONLY account with so they can't start issuing "joint account statements."

What you are thinking at this point: "WTF, opportunity cost!! I could put that money to work, rather than have it sit there!" - First, OK, I agree, I get it. A CD is fine if you wish. At most, a low risk stock brokerage account can work. You cannot have "Accounts receivable next week, maybe, hopefully, you know if Fred pays me back" be your down payment funds. They ideally should be identified and segregated ahead of time. Once you put your funds in this simple account, we call the two bank statement cycle the "seasoning" period. Like wine, it has some period after which it's the most yummy. Too long, and yup you've got significant opportunity cost, so it's vinegar.

What the underwriter is going to be thinking if the account she is looking at constantly dips below/above the cash to close + reserves number: "Oh, so he's gambling with his home buying money. Really Chris? He's at the casino, or whatever (it's all 100% the same to an underwriter), THIS VERY MOMENT, with the money he wants to use to buy this home, and you want me to approve this? You want me to approve a loan based on a roll of the dice? You've lost your mind, GTFO my office. NEXT!" The OTHER thing she will be thinking, "Oh, so he's using his operating funds for his business to buy a home. That means his business will be out of money after we fund this loan. In turn, that means that buying this home is going to bankrupt his business! Qualifying income that we have a reasonable expectation of continuance? $0.00, loan denied."

TLDR: Segregate and season your house buying funds to keep things smooth and simple. Do not make it apparent that you're commingling business and house buying funds. If real estate management IS your business, make distinct (in distinct accounts that do not have joint bank statements) your "managing existing assets" money and your "acquiring additional assets" money.

Is that sufficiently expanded upon? :)

Edit: Point of clarity. Someone like me is always going to ask for "two months or most recent quarterly, all accounts, all pages, no exceptions"... then if I see that you've segregated & seasoned like I asked you to or you did it on your own, I'm going to simply throw away (and/or my computer will have an error, deleting them) the ones I don't want to see.

Ryan Moore · Answer

@Sarah Ziehr

It was someone I chose.  Not the end of the world since it just delayed closing from today until middle of next week.  But, like any other service you pay for, you expect them to come through on time.

Chris Mason · Answer

@Ryan Moore - OK, fair enough. If you moved it around before you were in contract, it probably should have been something you were pestered about during the first week in contract. This isn't one that's an 'underwriter judgement call,' it's 100% the same condition 100% of the time, no need to wait for an underwriter to say it.

So I'm going to flippity flop and side with you on this one, go be angry/frustrated. :)

Chris Mason · Answer

They likely didn't know about all these random transactions ahead of time.

Towards the end: "Hi, will you please send me a transaction history showing your cash to close clearing your account?"

Look at transaction history. 15 large deposits. They ignored my guidance. Great, thanks for helping me help you.

Need to source all 15 deposits.

Need transaction histories associated with the bank accounts all 15 large deposits came from, and two months of regular bank statements if this came from an unverified account, which in turn will also need to have all large deposits sourced.

Can cascade from there.

Relationships are a two-way street.

When I write a preapproval letter, that means I've captured a moment in time. When the shutter clicked on my digital camera, there was $100k in this account, $75k in that account. Any significant departure from that not pertaining to buying this house and sending funds directly from there to escrow, voids my preapproval. If the loan has been formally underwriting approved, this activity voids that approval and now I need to collect a bunch of BS to send it back to be re-underwritten.

You can collect rent from your tenants and pay from your employer. That's OK and was captured by my digital camera. You can randomly move money around all you want, and I'll keep doing my job and harassing you for updated bank statements, and keep sending it back to be re-underwritten, and we will never close until you stop it. That's how this two-way relationship works.

Should I be upset with my lender?

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