I got a call a few weeks back from an irate buyer who just wanted to vent. This wasn’t a customer of mine, just someone who saw one of my videos on YouTube and thought I might lend a sympathetic ear.
The gist of the complaint was this: “I have X thousands of $$$ to put down and no one will give me a loan.”
I tried to get to the root of the problem.
It appears the person was self-employed…that can be an issue because cash flow a lot of times doesn’t show up on a tax return in a way that lenders like to see. Lenders want to look at net taxable income, for example, instead of gross income. But there are ways around that with the right type of loan or documentation.
The person also let slip that they might be credit challenged. Should this be an issue if a person had enough to put down? It could be that their credit was a lot worse than they let on.
Credit vs. Income
There are two basic things a lender looks at when a person applies for a loan that could sink them right off the bat, income and credit.
Income represents a person’s ability to pay. In other words, do you have enough money to make the loan payment every month?
That’s pretty straightforward.
Credit represents a person’s willingness to pay. In other words, if you have the money to pay off the loan will you pay it off?
Credit measures things like how timely you have been with things like credit card payments, car payments, house payments, etc. If you’ve been late on payments, regularly, it’s going to make a bank less willing to work with you. Would you loan money to someone who paid you back late?
Also, if you haven’t paid something…called a “charge off”…where the bill got sent to collections and never got paid, that will hurt. Chances are even if someone is willing to give you a loan, you have to pay off the charge off first before they will actually lend you the money. And if you have a lot of charge offs you’re going to need to be patient, rebuild your credit, and try again in a year or two.
Then there are foreclosures, bankruptcies, and the nuclear bomb (and you thought foreclosure was the nuclear bomb): eviction.
In the current climate lenders, to a degree, understand foreclosure and bankruptcy. If you are elegible for a VA a loan you may only have to wait two years past a bankruptcy or foreclosure to get another loan.
But eviction is where a renter failed to pay and then failed to move. They failed to move so much that the landlord had file a case in a court of law, pay legal fees, get a judge to order the renter to move, and then have a Sheriff’s deputy physically go to the property and remove the renter. And then the landlord had to move the renter’s stuff to the curb him-or-herself.
Eviction is bad. Everybody understands someone who has fallen on hard times. What people don’t understand is a person who screws somebody else because they fall on hard times.
I secretly think the person who called me got evicted, but I let the person vent and didn’t say anything.
One more thing that could be as potentially bad as eviction: a criminal conviction for writing bad checks. Enough said on that I think.