Every week, we ask an Boston real estate professional for their thoughts on the top trends in Boston real estate.
This week, we talked with Shant Banosian, a branch manager with Guaranteed Rate.
Boston Agent (BA): In a recent article, we discusses some of the top reasons that home sales don’t close, and chiefly among them was an inability to obtain financing. In your experience and considering the current market, what are the biggest barriers keeping hopeful buyers from getting approved for a mortgage loan?
Shant Banosian (SB): There are three parts to getting approved for a loan: income, credit and assets.
Credit is certainly the biggest determining factor. Banks want good credit. I believe the national average credit score for people attaining a mortgage is somewhere around 740, which is a really good score. Whereas, if you took that same average six, seven, eight years ago, that number was probably in the low- to mid-600s. So, really, most people who are getting mortgages these days have great credit. If you have any missed or late payments on your credit report, or judgments, or your credit card maxed out, things like that will keep banks from writing the loan, because they really do want great credit nowadays. Now, it’s not like you need perfect credit, but it’s going to help your chances and rates immensely.
In regards to income, you have to verify your income, and banks are pretty conservative with how they do that, so they’re going to look at your tax return, which has caused some problems for self-employed borrowers. It’s one of those cases where you can’t have your cake and eat it to. For example, when you’re self-employed you can write off a lot of business expenses that you’ll be able to later write off in your taxes. When banks see that, they’ll qualify those expenses as true expenses, and they’ll qualify you from your net income earned. So, a lot of times, someone can actually afford a mortgage, but because they have a lot of business expenses they’re writing off, that verifiable income we can use is actually the taxable piece of income, not their gross revenue.
For assets, a lot of times people accept financial gifts from parents or family members, which are acceptable, but you have to be careful about how they’re traced. If you receive a gift in cash, it’s virtually impossible for us to trace it. Borrowers need to properly document their gifts to show where the money is coming from and making sure it meets all bank guidelines.
BA: An analysis from Trulia found that owning a home in Boston is considerable less expensive than renting. What keeps homeownership in the area so comparably affordable?
SB: I don’t necessarily consider Boston affordable, moreso than New York or San Francisco, but $1,000 per square foot is quickly becoming the norm in the city. What’s happening is that rents are skyrocketing, and it’s because there is such a lack of available rental property, not to mention the number of new luxury apartment buildings going up. When people are comparing a $4,000 a month rental payment to a $4,000 a month mortgage payment, I think they see the sense in choosing the latter. They know if they park their money in a house that they’re going to get the tax deduction and the asset appreciation, and all for the same price as renting.
Renting is essentially throwing your money away, and I think Boston homeowners see the value of what is truly a pretty safe investment.
BA: Banking has been traditionally a paper industry, but like so many others, it’s more and more moving towards digital. What innovations have you implemented to help streamline business?
SB: Guaranteed Rate as a whole has done an amazing job in staying at the forefront of the industry in terms of technology. We’re trying to 100 percent paperless, and I think we’re definitely ahead of a lot of our competitors. Our online application is especially cool. It allows borrowers to apply for a loan online with a complete application, which allows you to pull your own credit report; it’s almost as if the customer were sitting down with me. You could get issued preapproval without ever speaking to an officer.
With the popularizing of smartphones and texting and email, I’ve found that people just don’t want to talk on the phone as much. They prefer quick updates because they’re lives are busy. With that said, Guaranteed Rate allows clients, as well as anyone they’ve decided to work with (i.e. Realtor and attorney), to track their application as it goes through the process.
Of course, officers try to jump into the process and double check the data and give that personal interaction, but so much can be done online now.
Another cool thing the company’s done is create its own Dropbox-esque application, which allows clients to avoid faxes or emails, and instead just drop important documents into a secure, online folder.