Phil checking in this week from the A Nightmare on Loan Street Blog. Two blog posts in two weeks is really ramping up my case for a Pulitzer. If you’ve read both of them, email me a picture of your Book-It pin, and I’ll hook you up with a sticker.
This week, we are reviewing a common pain point for the self-employed: the big banks telling you that there isn’t enough money on your tax return to justify a new loan.
Quick history lesson here…back in the early 2000s there were a lot of popular things: flip phones, Limp Bizkit, and sub-prime mortgages. Basically, banks were lending like it was 1999. The problem is that it wasn’t 1999, and a lot of people with bad credit scores borrowed and bought more than they could afford. This contributed to a huge global financial crisis that I refer to as…the 2008 global financial crisis.
The U.S. government was like “Dodd, Frank, Martha, can you help write some legislation to fix this?”. Martha got the short end of the stick, and the Dodd Frank Act was passed in 2009. It put some structure in place to help avoid this kind of crisis from happening again.
The bummer is that it made it tougher for folks with non-traditional income (self-employed, entrepreneurs, real estate income, those in boy bands, etc…) to secure a loan. And that still holds true today.
I hear about this time and time again here at the Blog - like just last week we had someone write us who is a really successful physician. This MD is really MaD. See what I did there? Moving on…
My new friend is a physician who has 20 years in private practice and also has a prescription for success in real estate: own strip malls. Like $5M worth of commercial real estate. But when he wanted to refinance the mortgage on his $3M home, the big banks told him to take two ibuprofens and call them in the morning when hell freezes over.
Tammy from an unnamed bank was all over him with low rates at the get-go. That turned out to be more painful than the dog’s chew toy that this physician had to remove from a patient’s…we won’t go there (just be careful where you sit). In short, Tammy said that his commercial real estate looked like a liability because no income was being reported.
The doc was pretty frustrated. And wouldn't you be? Successful practice + owns commercial real estate = qualified borrower. Or so he thought.
This is why it’s helpful to ask about things like bank statement loans if you’re in a similar situation. You see, there are lenders out there who are willing to work with clients looking for a loan that don’t pay themselves much on their W2. While the big banks don’t do this, bank statement loans exist with other lenders like Truss Financial Group. They simply reviewed the personal and business assets from this client’s bank account (thus the name) to verify that he could most definitely pay this loan.
If this sounds like you, tell the guys at TFG that Phil sent you.
P.S. - if you still have the Book-It pin, let’s meet up at Pizza Hut.