Mortgage interest rates and house prices on the North Fork are at record lows, a perfect time to buy — except that lenders here aren’t too quick to part with the cash people need to seal a deal.
“The banks are looking for perfection. It has to be pretty much the perfect loan” to be approved, said longtime Southold mortgage consultant Richard Winters.
Nationwide, it was loans that required no income verification that helped lead to the real estate meltdown. Those kinds of easy loans have almost completely disappeared, making it harder than ever for some North Forkers, especially the self-employed — from landscapers to contractors to entrepreneurs — to justify their eligibility for a mortgage.
“No doc loans,” as they are called in the industry because so little documentation was required, made up 10 to 20 percent of Mr. Winters’ work before the meltdown.
“It’s almost impossible to do a bank-type loan with somebody that is self-employed and doesn’t fully report their income on a tax return, even if they have squeaky clean credit,” he said of the current market. “The no income verification loan was a good product, if underwritten properly, but a lot of lenders say they’re not going to do them any more.”
Mr. Winters said the only remaining option for homebuyers who can’t verify their incomes is private financing, but most private lenders won’t look at a loan unless the buyer is willing to put down at least 50 percent of the purchase price.
“It kills the young couple,” he said.
Mr. Winters said that the lenders he works with are looking for higher credit scores and are more closely examining the sources of down payments than they did in the past.
He said that he can do little to help anyone who has a credit score under 700 get a mortgage.
“Before, I think the minimum was about 680. You could even get away with a 620 if you had a good explanation,” he said.
“They’re also looking for anything weird about the source of the money coming into the purchase. The documentation has to be extensive,” he said. “If it’s family money, it’s legitimate, but it’s not theirs,” the homebuyer’s, which could raise a red flag. “They’re really looking for personal equity.”
Banks that specialize in mortgages, such as Ulster Savings Bank in Riverhead, may be in a position to gauge each potential homebuyer’s ability to pay better than a nationwide mortgage broker, said Douglas Van Slyke, a mortgage consultant at Ulster Savings. His company offers stated income loans, which are a form of no documentation loan that allows people to supply income figures without backing them up with tax documents.
“We evaluate self-employed borrowers by the stated income, and we go up to 75 percent of the value of the property,” said Mr. Van Slyke. “We use our own portfolio money.”
Mr. Van Slyke said that Ulster Savings offers programs that mirror the federal FHA loans allowing down payments as low as 3.5 percent. But he cautioned that it’s more difficult for people who have trouble verifying their income to obtain loans with low cash down, because mortgage insurance companies are also required to sign off on loans with less than 20 percent down.
Mr. Van Slyke said Ulster will consider applicants with credit scores as low as 640, though before the market downturn they considered borrowers with scores as low as 620.
“But we’re looking for 700 for stated income loans,” he said, adding that a credit evaluation is an important part of a free initial consultation that he does with his clients.
Realtors, including Kathy Rosenbaum of Lloyd’s Realty in Greenport, are urging their clients to seek financing before they begin shopping so they know what they can afford.
“It’s a lot more hard work to keep deals together. You don’t know if the bank is going to accept the mortgages or not,” she said, adding that a bank can balk on a mortgage for a variety of reasons even after pre-qualifying buyers.
“The banks are tight,” Ms. Rosenbaum said. “If you’re looking to buy a house, you need to talk to a mortgage person and see what you can afford. But that doesn’t mean at the very end they’ll say you can have the mortgage. Mortgages are still being denied.”
Mr. Winters said he can tell a lot about whether or not he can help a prospective client after an initial consultation.
“We do the best we can to try to get them satisfied, but I tell them if I can’t help them at a reasonable price,” he said. “There are lenders out there that will do anything and it’ll cost a fortune. I don’t do those loans and I don’t recommend them to anybody.
“I think we’ve been through the worst of it,” he added, commenting on the mortgage crunch, “but I wouldn’t want to be a young guy starting out in this business. In Southold alone, there were four or even five non-bank mortgage consultants, and now there’s just one. Old Dick Winters is still here.”