Looking over the housing markets, and considering the negative sentiment out, I decided that this was a good time to purchase a new home. Rates are 5.875% fixed and many home prices are depressed currently. And I’m not alone in my decision to pick up some property. So I wanted to share my experience so far, and at the end of this post I have 2 questions for you my reader.
Many who have good to excellent credit ratings, and available cash are out looking for a new home or a first time buy. But don’t believe this is exactly a buyers market. Even in a dying economy that is the Binghamton New York experience, home prices have held firm if not risen up. In fact I would say that prices over the last 6 months have risen about $3,000 on median. Because many like myself are entering this troubled market.
Still there are bargains to be found. I am looking into a couple as this is being written, and is part of the reason why I have not been writing as much as normal for both of my blogs. [Of course having built and set up over 100 blogs in the past 2 months, the deal with TV One
, and working out a deal with an upcoming magazine are factors as well.]
Part of the process in getting a home is the mortgage pre-approval process. For those that are unfamiliar this is the initial amount that you may be able to get a mortgage for, the loan rate, and all other terms you might run into. It is affected by your credit rating - heavily, cash on hand, and income as per taxes filed.
Now without giving away too much of my finances (some points I will deliberately extrapolate on – so the figures on income and pricing are inaccurate but the situation and rates are accurate) I will make you aware of what the world is like for me. You can decide if my skin tone and last name are factors or not.
My first stop in the process was my local bank, NBT, which I have had accounts with for several years. I believe I had 1 check bounce in the entire time I was with the bank, and that was because of a bank error in depositing funds into the proper account. I also know and speak with a couple of managers on a regular basis. Thus you can say my relationship with the bank is favorable to friendly.
I initially was given an indication that my pre-qual rate would easily be what I had asked for. My credit rating is 750 (after rebuilding my credit after a career change in 2001) with at least one agency ranking me at 766. That is considered good to excellent. It would normally grant a lower credit rating as I am a low risk. I also have no long-term debt. Thus the initial loan rate mentioned was 6.11%. I have a witness to this.
I was rather pleased.
But after looking at several homes, and having requests from the bank for additional tax records for my corporation and myself – which I provided promptly – I received my pre-approval line. 7.11% and a reduction in the dollar loan amount of 27% [ie. if I asked for $100,000 they approved $73,000]. But I was assured that this is not accurate and I could be approved for more if I found a home in the range I was initially looking. Though no mention was made of what interest rate would go with this higher loan dollar amount.
Now I am insulted. I went from a very good interest rate and a decent yet highly affordable mortgage (fixed rate 30 years) to a bad rate – 1% higher than initially suggested and documented and 1.235% higher than the national rate – and a dollar bracket that provided access to homes far inferior to what I had wanted.
I will add that I have an income that surpasses the local area average, in excess of 2x’s, and never had a bankruptcy. There was a surplus of cash in my bank account - as there has been for over a year - that easily surpassed the 3% required for the loan by the bank. I have been operating my business for 2 years, and have been in the field of work for over 7 as an independent consultant. I have never been sued and was a successful stockbroker for roughly a decade.
I believe the increase in rate and decrease in dollar loan amount is insulting. I was given a reasoning that my credit report had bad notations (which I have reviewed for well over a year and cannot find), I have inadequate cash reserves (which I noted above), I do not make enough money for what I was requesting (which I and the initial loan officer determined I had far in excess for the amount requested beyond the local area average), and I failed to have enough funds to meet the 3% closing requirement (which I had in excess of 7% sitting in the bank).
Now what factor could be the reason for the change? What could motivate such an extreme reaction?
The loan officer that questioned me, and needed additional documents, never met me. He did speak to me (getting my last name wrong a couple of times). So what changed? Could it be that my actual last name (which is Spanish and yes Vass is a registered alias I use for business to avoid racial prejudices since I was a stockbroker) was too ethnic? Was it that my income too far exceeded the income of most of the 3% African American population in this area – as well as exceeding the White population income average.
Obviously I went on to seek out a separate mortgage loan via a broker that is Hispanic, and the brother of a friend. My preference was not his background but that I knew his brother whom I speak with regularly.
It has been over a week since placing my documentation with him. He is quite successful in getting mortgage loans, and owns his own brokerage. He too had high expectations for my loan. His opinion was that my dollar loan amount was very reasonable and in my affordability range. He could not understand why a bank I had been doing business with for years could not provide me a better rate, which he believes will be in the 6.4 – 6.6% range. Based on my cash on hand he believe that he might be able to get that percentage down to 6.25% (obviously the difference [from 5.875%] is for his own operating profit, which I do not begrudge him. This is business after all and we aren’t doing this to not make a profit).
Why am I facing a delay? Because the bank has suspicions that I am hiding money. Because I own my own business the bank that the broker has gone to believes I may be laundering money. Now the United States Government, via the IRS, has had no problems with my finances. My income has been steady with a respectable increase to my top line revenue for years. Every dollar that comes in is documented, and every write-off is noted and within legal allocations. I do not make excessive amounts of money (Bill Gates, or even several stockbrokers I know, make significantly more), I am just a regular small business owner.
So what could be the reasons? My last name is the reason some friends have mentioned to me. I’m ethnic and not generic like Smith or Hannity, or O’Reilly. I am immediately identified as at least Hispanic, and noted on some government documents as Black and Puerto Rican. And I live in an area that is 95% White, and comparatively a small town. Not to mention that a high percentage of those in the mortgage crisis are African American and minorities – though why they were selected and focused into these one-time highly profitable (for the lender) loans is unknown (sort of).
What do you think? Can you imagine a reason why banks would have a problem loaning money to a low-risk, no debt, middle-class income, single, business owner, who normally pays taxes (no refunds for me) is in his affordability range and has never had a bankruptcy or problem with the IRS?
Do you think if I was White, with exactly the same conditions I would be treated the same?
Before you answer here is another fact. Less than 3 weeks before interest rates were lowered, and prior to my first loan query, I had a friend that was pre-approved for a mortgage up to 75% greater than what I asked for. They had a 750 credit report. They are a single parent. They make 50% of my own income. They had a gift provided to cover closing costs and down-payment (which I do not begrudge).They are almost 20 years my junior. And the final loan amount was for a home in the range I am seeking, with an interest rate of ~6.75% (closing after rates dropped).
The big difference between us? Besides the income, that I am a business owner and not an employee, my age, and that she is a parent is that she is a White woman.
And for those wondering what the big deal about an extra 1.235% is that over 30 years (which I can affordably pay off in 5-6 years) there is an extra $20 - $50,000 dollars in interest to be paid.
So now I ask, why do you think I have been treated as such so far? Is this something others are experiencing across the nation?
Labels: Binghamton NY, credit report, home buying, IRS, mortgage rates, NBT Bank, real estate, TV One