Hula Hoop Lending

So lending these days has a few more hoops than it used to. Oh you can get the loan, you just need to sharpen up your hula hoop skills. Here’s what appears to be the hula deal … the more un-conventional your financial situation, the more hoops you will need to jump through.

What is unconventional? Depends on the lender but here are a few examples … self-employed, investor, non-owner occupied property, business owner, change in profession, a perceived change in profession, new job, asset rich, a large deposit in one of your accounts, a complex balance sheet. You may be the lowest risk client the bank has seen in a while but if you do not fit into the easy box as defined by the lender or, more specifically, underwriting, then more hoops. Different box, more hoops.

So what are the hoops you may need to hula through? Doubling up on verification of this and that, same docs you produced last month you need to produce again and updated this month, if you change jobs then definitely at least two paychecks, a letter from your mother (just kidding … well, not really … if she gave you some money, then a gift letter may be required), a letter from your CPA, a letter from your employer etc.

What has always been the deal is that there is “pre-approval” and then there is underwriting for final approval. Let’s not confuse the two and note that these two pieces have always existed. It’s just that you are being required to jump through a few more hoops for pre-approval and then re-jump those hoops plus, typically, a few more for final approval. When everyone knows this up front, then the hoop skills are, well, hoop ready vs. being blind-sided by additional run-around.

Why is this? It is actually very simple. Your lender will most likely need or want to sell your loan after you close. It’s called the secondary market. They need to make sure they can sell it. The more you fit nicely into their existing boxes, the easier it is for the lender to group it with other similar loans and sell them as a package. If you’re in a round box, not as easy to package and sell.

But here’s the other deal, it can change from month to month so your lender and your Realtor and your title company are all, if they’re on top of their game (actually, on top of your game) having to re-hone their hula skills and learn new hula skills all the time … and then coach you through the ever-changing hula course and the emotional taxations that come along for the ride.

Loans are being approved, just more hoops.

Happy hula.