Most of us have had those times when we bought something and sold it for more money. We call it making a profit.
For me, it’s not how much profit I would make, but the rush it would give me. It made me feel like a small version of a big-time investor. I have bought and sold mowers, tractors, boats and cars just to name a few. Years ago, over a span of two to three years, I didn’t even have a job. I was just a horse trader of about anything. It drove my wife almost crazy, but I had a blast!
There are also the odd jobs we do that can produce income. Growing up I mowed yards and put up hay for farmers in my area. I also trapped for several years. That was back when the fur prices were up, and I did very well. These things can bring in an ample supply of spending money, and that is a good thing.
You may be asking, “What does this have to do with qualifying for a home loan?” All the things above and so many others do produce income, but is this something a lender can use to determine if they can repay a loan?
To say loan qualification has changed over the years is an obvious understatement. Years ago, if the loan officer knew your dad or was connected somehow to almost anyone in your family, you were good to go. I am not sure if a credit report was even a thing when I started to borrow money. It was based on your reputation. If you didn’t yet have one, it was based on your family’s reputation. There were no underwriters, review boards, or even assistants. The loan officer you spoke with made the decision as to whether you qualified for a loan.
In today’s world of lending, banks want proof of anything you may use to qualify. Your word alone will not suffice. This is not just some banks, but all! It will be required of you to prove any income, years on the job, credit scores, tax records, bank statements, and a host of other items.
There will be more questions and explanations required than you can imagine. Things like why you changed jobs? Why were you overdrawn in your checking account last year? Where did this large deposit come from? These questions can seem to go on and on. It can be questions that you will have to dig to find the answer. Things that seemed so small to you at the time, the bank needs to know the why.
Now, back to those odd jobs and trade deals where we can make some extra money. This can be great for an extra vacation, new carpet, or fishing equipment. As for me, I have many things in my home that are result of this extra money in my pocket. Don’t we all?
Here’s the bottom line. If it does not show up on your tax returns, the bank typically will not count it as income. It’s just that simple. If half of your income comes from selling firewood, there’s a very good chance you will not get the loan. This type of income is not traceable or guaranteed like a paycheck. If you really think about it, you must understand the bank’s view. It is just not enough to base a 30-year loan on. Would you want to loan money with the understanding that you would be paid back with funds acquired from selling wood, selling mowers in your front yard, or anything of that nature? I don’t think I would.
Like many young men, I started running a trap line in the mid ‘70s. This continued for the first 10 years or so after I got married and the kids were still small. There were many Christmas gifts that were purchased with monies acquired from selling furs. I am not even sure how we would have survived those early years without it. But I guess we would have just thought of something else.
The sure thing is that today, any lender would not have counted it as income for a home loan. Thinking back, it almost sounds crazy, but Bill Siddons told me that he knew my Dad and I would be OK for a loan just to come in to talk to him sometime. Go figure! Times have changed.
Randy Butler is a lifelong resident of Highland County and a licensed real estate agent for Classic Real Estate in Hillsboro.