First-Time Buyer Chronicles, Part 8: A Difficult Loan Process Can Make You Stronger, and Smarter
In the heady rush to buy a house, we sort of forgot that the money part, our loan, was more in our control than we thought it was. But learn from me, readers: you aren’t as powerless as you feel when you apply for a loan. You aren’t just a pawn. You are more than a compilation of credit scores and income to debt ratios. In fact, whoever funds your loan stands to make money on you. As a potential homeowner, your business is in demand. You can demand back a little respect.
Non Traditional Income
Scott and I, newly married, have excellent combined credit, decent middle-class income, and low debt. Really, we should have been beating off the loans with a stick. But though we were heartily pre-approved, when it came time to getting actually approved, we ran into trouble.
The trouble: our freelance income. Scott is a graphic designer and painter; I am a teacher and writer. Both of us earn at least half our total income through contract work, not always reliable as repeat income. We complete a contract successfully and get paid, then it’s off to find the next client. We can’t know for certain in a given year where all our pay will come from, nor can we be sure how much money we might earn. And though we’ve survived okay this way for our entire professional lives, today’s banks don’t like uncertainty.
When our mortgage broker found her lenders wanted more “for sure” than we knew how to produce, we realized our original closing date would never happen. We would need more time to figure out how to get our loan funded. In the meantime, the home we wanted had a seller with a deadline. She needed to sell to repay a lien on the house. She was afraid our loan would fall through, and starting making demands. She wanted us to release the earnest money, plus more, to cover the repairs she had made on the home, repairs we’d asked for during the inspection period. And we started freaking out. Would we lose the earnest money, plus more she was asking for? We’d already paid for an inspection and an appraisal. We couldn’t afford to lose more money on this house if there was a chance we wouldn’t be able to buy it.
Enter the Credit Union
As members of the Advantis Credit Union, we had free access to loan counselors. I decided to take advantage of that, even though we were seeking a loan through a different mortgage brokerage.
The meeting was most illuminating. Our counselor reviewed our information and suggested a few ways we might make the loan work. These included a smaller loan, increasing the down payment, paying off a car loan, or getting the IRS to confirm our 2011 income (previously we’d only been asked to show 2009 and 2010 tax returns as the 2011 filing deadline was months away still).
The meeting made me wish we’d approached Advantis first with our home loan needs. But since the deal already in motion, we decided to ride it out. If, by chance, we couldn’t get traditional banks to back us, we felt we could come back to Advantis to get the loan. This backup plan went a long way in calming us down, and putting us back the driver’s seat—or at least, putting us in a position to have some say in the way the car was driving!
Back to the Drawing Board
Armed with the credit union’s suggestions, I approached our broker. She took the ideas back to her lenders, and we agreed on the IRS route: If we could get the Feds to confirm our income for 2011, we could use the freelance money as well, because we had proof the money was still coming in. Then we would also need current employers to confirm future work was expected.
The extra work- especially that involving the IRS- meant extra headache. But we were too deep into the deal to give up now.
I detailed how you can get the IRS to confirm your tax return in a previous blog. I offer that info again in the additional resources links below, because we eventually, only 2 days before our extended close date arrived, succeeded in getting the confirmation we needed for our loan to go through. I’ve many more gray hairs from the experience, but I did come out on top—as in, a homeowner for the very first time. Here’s hoping my story helps you do the same.