Mortgages for New FAs

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Jul 31, 2006 11:14 pm

Hypothetical here:



Bob is changing careers into the wirehouse FA world
Bob is moving to take the job
Therefore, Bob cannot tell the mortgage broker that he will be continuing his old, decent paying job.
Bob will be working at a wirehouses where he gets a 2-year salary, then commission position

Will it be difficult for Bob to get a decent mortgage, assuming good credit? 

Jul 31, 2006 11:16 pm

One addendum: should Bob try to get a mortgage from an FA at his new wirehouse employer?

Aug 1, 2006 8:36 am

You can always do a No Doc loan your rate will be about 1/2 pt. higher but you won't have problems with employment change.



Aug 1, 2006 1:13 pm
opie:

Hypothetical here:



Bob is changing careers into the wirehouse FA world
Bob is moving to take the job
Therefore, Bob cannot tell the mortgage broker that he will be continuing his old, decent paying job.
Bob will be working at a wirehouses where he gets a 2-year salary, then commission position

Will it be difficult for Bob to get a decent mortgage, assuming good credit? 



As a former bank lender, I can tell you that since Bob is changing careers and doesn't have 2 years taxes in his new position the lender will want to see a copy of the contract of employment and proof of current income.    It would also be helpful if Bob has some subtantial reserves, such as CD's and other liquid sources of cash and a very low debt to projected income ratio. i.e very little credit card debt available.


Even with this information, I would be disinclined to lend to Bob, because his future income is predicated on commissions which cannot be assured and Bob is probably subject to being laid off within the first 2 years (no job security).   Until I had two years of income taxes showing that the commission income is sufficient to repay the loan and that Bob is consistant in his income, I wouldn't touch Bob's loan with a ten foot pole.


However, you can try to get a mortgage based on "stated income", which will be a much higher rate than standard mortgages and will have substantial prepayment penalties that handcuff you to the higher rate for 2 to 4 years.  


Be careful if you do go that route, that the mortgage broker doesn't "shop" your application all over the place where each lender will pull a credit report and ultimately drag your credit down due to excessive credit reports.  Catch-22

Aug 1, 2006 1:29 pm

Which wirehouse are you going to?  At some firms, FAs can get a referral fee on mortgages which counts in your revenue.  You might not want to miss that.

Aug 1, 2006 1:41 pm

Thx Babbling Looney!  Precisely what I was looking for.  Couple of follow-ups:



Bob's mortgage broker suggested that he try to be transferred to near the new location by his current employer, buy a home, and then quit after 6-12 months to enter the brokerage business (if Bob was still inclined to do so).  Bob liked this idea at first, however, he is not nuts about the ethics of the suggestion, and doing so may still require another move afterwards.
When buying a home in a new location, do people ever get away with qualifying for it based on current income?  (Assuming this is not a second home purchase.)
On a $200,000 loan, how much more would you anticipate Bob to pay for a "stated income" loan over the 2-4 year period?
Aug 1, 2006 1:43 pm
vbrainy:

Which wirehouse are you going to?  At some firms, FAs can get a referral fee on mortgages which counts in your revenue.  You might not want to miss that.


Thx for input.  Well, we're talking about Bob here, but Bob is considering most of them.  Approx. how much of a referral fee are we talking about?

Aug 1, 2006 2:16 pm
opie:

Hypothetical here:



Bob is changing careers into the wirehouse FA world
Bob is moving to take the job
Therefore, Bob cannot tell the mortgage broker that he will be continuing his old, decent paying job.
Bob will be working at a wirehouses where he gets a 2-year salary, then commission position

Will it be difficult for Bob to get a decent mortgage, assuming good credit? 



 Bob should seriously consider signing a one or two year lease on a nice but modest rental, preferably an apartment or condo.  That way Bob will have less financial pressure and fewer household chores to distract him from the very demanding job of getting started in the wirehouse world.  This will increase his chances of success.  Perhaps Bob will also have some cash reserves from the sale of his prior home, which is also a good thing for the first few years in the business.

Then, if Bob succeeds, he will ultimately be able to buy a much bigger and nicer house a year or two down the road.

Aug 1, 2006 2:26 pm
opie:

Thx Babbling Looney!  Precisely what I was looking for.  Couple of follow-ups:



Bob's mortgage broker suggested that he try to be transferred to near the new location by his current employer, buy a home, and then quit after 6-12 months to enter the brokerage business (if Bob was still inclined to do so).  Bob liked this idea at first, however, he is not nuts about the ethics of the suggestion, and doing so may still require another move afterwards.
When buying a home in a new location, do people ever get away with qualifying for it based on current income?  (Assuming this is not a second home purchase.)
On a $200,000 loan, how much more would you anticipate Bob to pay for a "stated income" loan over the 2-4 year period?

Being transferred and buying a home with the knowledge that you are going to be leaving the job that qualified you for the loan is probably not the most ethical way to go. 


If Bob were to buy a home based on his current employment and qualified by that income (entirely possible), live there for a while and then had to move again, could Bob just rent/lease the home for a while? This is sometimes not allowed as a condition of the loan, so Bob needs to check this out first.  If he could do so, while covering the mortgage and insurance, hopefully build up equity and have some tax write offs while establishing himself in his new career, this could be benefical in the long run.   Of course Bob should be aware of the IRS use and ownership rules for deferring capital gains on the sale of a residence that has also been a rental.


Without knowing Bob's credit rating or debt to income ratio, I would assume a loan 1.5 to 2 points over the going rate.  Could be better if Bob has very good credit and very low debt.   A prepayment penalty on such a mortgage could be as much as 6 months or even a year of interest.  Mortgage brokers don't usually disclose this until they have the hook firmly planted in your mouth.

Aug 1, 2006 2:31 pm

Joe has also a good suggestion.  That Bob should consider leasing or renting until he gets his feet on the ground.  Beginning a career in this industry is difficult without the expense and responsibility of home ownership or owning and managing rental property  


Of course, if Bob is married and has additional income sources this changes everything.


Bob, seems like a very earnest and eager guy.  I would hate to see Bob fail due to the pressures of excess debt.

Aug 1, 2006 2:51 pm
babbling looney:

Joe has also a good suggestion.  That Bob should consider leasing or renting until he gets his feet on the ground.  Beginning a career in this industry is difficult without the expense and responsibility of home ownership or owning and managing rental property  


Of course, if Bob is married and has additional income sources this changes everything.


Bob, seems like a very earnest and eager guy.  I would hate to see Bob fail due to the pressures of excess debt.



Well intended but a sad statement about the true nature of the industry. It's the high instability rate that reflects far more than individual skills that deserves question. You can't buy a house while you build a practice?


Aug 1, 2006 2:59 pm

Thanks again for the great responses.  Couple other points:



Bob should net out between 150k-200k from the sale of his current home.
Bob's mortgage broker does not think he could qualify to buy a home in the new location in the price range he is seeking and maintain the old one.
Bob does not want to rent - spouse would balk (or worse) and Bob wants the investment and tax write-off.
Bob has a high credit rating (around 800) and about a .20 debt to income ratio (in current non-wirehouse job)
Bob's mortgage broker (Phil) seems to think that he will get Bob the loan he wants if he gets a letter from the Broker saying that Bob will make a minimum of $xx per year over the next two years, which is what Bob thinks will be offered him.  This shouldn't be a problem, right?  (Assuming he gets a two-year salary offer, which is common in the wirehouse market as told to Bob.)
Aug 1, 2006 3:03 pm

One last thing Bob just told me.  His wife is seeking part-time employment, but Bob thinks it makes more sense not to include her potential pay in the equation.  He feels like he can sustain his salary offer at a wirehouse (if it is average) after it goes away the third year.

Aug 1, 2006 3:21 pm
joedabrkr:


 Bob should seriously consider signing a one or two year lease on a nice but modest rental, preferably an apartment or condo.  That way Bob will have less financial pressure and fewer household chores to distract him from the very demanding job of getting started in the wirehouse world.  This will increase his chances of success.  Perhaps Bob will also have some cash reserves from the sale of his prior home, which is also a good thing for the first few years in the business.

Then, if Bob succeeds, he will ultimately be able to buy a much bigger and nicer house a year or two down the road.
 


I am sorry to have been gone--I know many of you missed me.  My brother called on Wednesday and offered me a ticket to the Senior British Open if I could meet him in London on Friday morning.


So I did.


But now I'm back and would like to point out that Joe did not follow his own advice.  It's odd that the thinks Opie's "friend" Bob should lease a condo instead of buying a home that shares its backyard with the country club fairway--and also join the club.

Aug 1, 2006 4:05 pm
NASD Newbie:

[quote=joedabrkr]


 Bob should seriously consider signing a one or two year lease on a nice but modest rental, preferably an apartment or condo.  That way Bob will have less financial pressure and fewer household chores to distract him from the very demanding job of getting started in the wirehouse world.  This will increase his chances of success.  Perhaps Bob will also have some cash reserves from the sale of his prior home, which is also a good thing for the first few years in the business.

Then, if Bob succeeds, he will ultimately be able to buy a much bigger and nicer house a year or two down the road.
  [/quote]


I am sorry to have been gone--I know many of you missed me.  My brother called on Wednesday and offered me a ticket to the Senior British Open if I could meet him in London on Friday morning.


So I did.


But now I'm back and would like to point out that Joe did not follow his own advice.  It's odd that the thinks Opie's "friend" Bob should lease a condo instead of buying a home that shares its backyard with the country club fairway--and also join the club.



NASD you have an amazing memory.  Suffice it to say that the two situations are different, in that-
1.)  My bride also generates income for the family
2.) We had significant equity from our prior home.  Our mortgage is only about 1/2 the value of our current home.
3.)  I have an established client base, unlike "Bob" who is just starting out.

Understandable that Bob's wife may not like the idea, as she may percieve it as a step down.  She should consider how much stress would be saved from the family by having less to worry about during a busy time in "Bob's" career.  Too, the tax benefits are nice, but "Bob" needs to understand that you need to spend money(mortgage interest and real estate taxes) to get the deductions, and he should be cautious about spending money during the early stage of his career.

So I'll stick with my original suggestion.  That is what I would do if I were in his shoes.

Oh, and NASD, I noticed your absence but can't honestly say that I missed ya that much.

Good luck, "Bob"!

Aug 1, 2006 4:07 pm
opie:

Thanks again for the great responses.  Couple other points:


Bob should net out between 150k-200k from the sale of his current home.
Bob's mortgage broker does not think he could qualify to buy a home in the new location in the price range he is seeking and maintain the old one.
Bob does not want to rent - spouse would balk (or worse) and Bob wants the investment and tax write-off.
Bob has a high credit rating (around 800) and about a .20 debt to income ratio (in current non-wirehouse job)
Bob's mortgage broker (Phil) seems to think that he will get Bob the loan he wants if he gets a letter from the Broker saying that Bob will make a minimum of $xx per year over the next two years, which is what Bob thinks will be offered him.  This shouldn't be a problem, right?  (Assuming he gets a two-year salary offer, which is common in the wirehouse market as told to Bob.)



Bob should also consider that, in the current interest rate environment and with growing inventory of unsold homes on the market, a home may not be the greatest investment for the next two years anyway.

Like I said, too, he might likely be able to be a much nicer home in about 2 years if everything works out career-wise.

Aug 1, 2006 4:17 pm

Ohh Putsy.... I was hoping you got mugged by a street gang while walking the mutt around the Lower East Side late one night....

Aug 1, 2006 4:31 pm

Thanks again for the input everyone.



Bob thinks that a $1200/mo rental payment plus excess furniture storage after 5 years of owning a home is close to equalling the $225,000 mortgage payment, not including tax breaks and appreciation.
Aug 1, 2006 4:45 pm
opie:

Thanks again for the input everyone.



Bob thinks that a $1200/mo rental payment plus excess furniture storage after 5 years of owning a home is close to equalling the $225,000 mortgage payment, not including tax breaks and appreciation.



Sounds to me like "Bob" has spent some time thinking this through.

What if there is no appreciation?

Aug 1, 2006 5:05 pm

Without appreciation, Bob still thinks they are comparable.  However, Bob is now wondering, if he were to rent and invest the appreciation in his current place ($150-200k) towards his AUM as a new FA.  He doesn't know if that is a smart or dumb notion.  He'd rather put it in a house, even in a flat market, he thinks.