Originally Published 2007-05-22 18:01:53
My post earlier today where I briefly described the hassle of getting my first mortgage along with recent news that banks have been enforcing stricter lending standards reminded me of something I've said in the past to friends and family who have expressed frustration at the loan origination process.
Banks are in business to loan money. Period. Their business model is built upon borrowing money at a low interest rate and loaning it out at a higher rate. So they want to loan money to you. Don't forget that.
Now, before I talk about presenting yourself favorably, I need to make something very clear: make sure you can afford it. Flying by the seat of your pants is ok (I do it all the time, and have fallen back on credit cards temporarily on many occasions to make ends meet), but at the end of the day, if you cannot repay the money borrowed, then don't borrow it. Teaser rates be darned, this is business. You owe it to yourself, your karma, and the entity your actually borrowing from (even if a faceless corporation) to do this right.
Have a plan for repayment. Faith can be involved, but make sure you can handle a negative turn of events before moving forward. Expect the best, but plan for breaks in the road.
Now that I've warned let's talk about dealing with banks. Tell yourself you won't accept "no" for an answer and remember these key points when dealing with financial insitutions:
- Everyone is a Vice President. Just because you're talking to a veep doesn't mean he or she has any ability to alter the outcome of your transaction.
- Everyone at the bottom says no. They're trained to do that. If you're not sure where the person you're talking to sits on the totem pole, refer to #1. Then ask if they have the authority to say yes. No? Then how about you talk to someone who does.
- Most people at banks don't think like entrepreneurs. They are run by people who think a 6.5% return on their money is good (that's what the 30 year fixed mortgage rate is these days, right?). I have an anecdote for this one, too. Once, during the application process on a new real estate purchase with World Savings, the loan agent for World Savings insisted that she couldn't do the loan because I already owed World Savings over a million dollars on other investment property. I asked if any of the payments had ever been late, knowing the answer was no. When she confirmed this, I replied, "well, then, you should be delighted to loan me more money, because you're assured that I'll make prompt payments!" The loan was approved the next day.
- Stick to gross numbers. I don't make any money from real estate; I never have. All of my "wealth" is on paper. In fact, I would have lived better over the last decade if I just bought nice cars and partied a lot instead of playing the landlord game. But no matter how cash poor you are, put your best foot forward. When I bought my first new car five years ago, I put down only my W-2 income, asking the finance person I was dealing with if I should include "other income". He incorrectly told me no, then ran my credit and discovered that my monthly liabilities were 6 times what I earned on my paycheck. "How do you live?" he asked, noting that I apparently had been paying my bills on time for many years. I then asked for a new form and included all of my gross figures without documenting any of my expenses. They couldn't wait to give me the keys. Again, I knew I could make the payments -- it was just a matter of presenting the data properly. Lenders do their due diligence on your liabilities anyway, so there's no need to volunteer the information. Most likely, you'll just end up getting those obligations counted twice.
- If you really are credit-worthy (meaning you kept reading after I talked about karma, above), then someone, somewhere, will loan you money. The only question is if it's still profitable for you to borrow. Keep pushing those VPs you're talking to and get to the next level. Someone will say yes. Try hanging up and calling back (or going to a different branch if you're an in-person kinda guy/gal) if all else fails -- you'll get someone new, and with a little luck they'll be that much more helpful. And don't forget that there are literally thousands of smaller financial institutions eager for new customers. Citibank and BankAmerica aren't the only games in town (and, indeed, in my experience, they are the most conservative lenders).