Four doors before closing

“It looks like you’ve never made any money.”

That is what one bank concluded after reviewing Victor’s* tax returns for a mortgage. “You're losing money every year. We don't know how you burn $400,000 a year in expenses.” After the document chasing, the uploads, and the emails, the deal was dead.

Victor knew it wouldn’t be easy to refinance his home. He told me, “No matter how much I have in the bank… getting a first mortgage is a nightmare to this day.” Like most savvy self-employed people in this country, Victor works with a CPA who strategizes to reduce his tax burden. For that, he and millions of other Americans become illegible to many lenders.

Victor isn’t your average self-employed borrower. He is a high-net-worth investor and owns a substantial investment real estate portfolio. He also spent years on the lending side of the mortgage business. Despite being a mortgage insider, Victor went through four different doors over multiple months before he finally closed his loan. A W-2 employee with a tenth of his assets would have had an easier time.

Victor has five- and six-figure accounts at three different banks. Victor reported that at each bank the mortgage process started promisingly: quick preliminary approvals and rate quotes. He said due to his account sizes, “everybody bends over backwards to help me.” That is until they finally got around to qualifying his income via tax returns.

Bank one couldn’t read his file. They stopped with the quote I opened the post with, “It looks like you’ve never made any money.”

Bank two at least understood he was self-employed. They asked him to slide another quarter of a million dollars into his account for a half point lower rate. Then they suggested a workaround to make his income work. They wanted him to pay himself for 60 days via a payroll provider and set up a direct deposit at that bank. “Meaning they’re going to game the system,” he said.

Bank three failed at the beginning of the process, but not before trying to collect money for a rate lock fee. Remember bank three.

Three banks. Three failures.

Victor is more technically savvy than most. He tried “all the onlines [direct to consumer lenders], used the fledgling AI, everything else to check it.” He experienced a similar outcome. About 70% rejected him outright, often right after upload. The offers that remained started with teaser rates and landed as “two full points, 200 basis point over market numbers,” which he called “distress level” pricing.

Door 3 as Victor puts it, is the parent from the soccer team who happens to be a mortgage pro. The first read of Victor’s gross income and equity gets a quick approval. Then the underwriters dig in and the rejections begin. "She's not going to tell you that she's getting denial after denial after denial, and they're all trying to reshape your financial picture in order to jam it through." He said "you can spend weeks" on this door.

The door that finally opened was bank three again. It turned out that someone Victor knew personally worked in the home lending department of bank three. She also worked many years in the wholesale mortgage channel. “She knew me… so she understood it.” She took the time to truly understand Victor’s profile. Working with the wealth management arm of the bank where Victor had a large account, and with Victor’s CPA and attorney, she moved funds out of securities into checking, waited out a 30 to 60 day seasoning period, and closed. The process took about 120 days.

Same bank. Same file. A different person reading it. I heard versions of this from other borrowers and from real estate agents whose deals were saved by one person who knew exactly who to call.

Victor told me, “If I would have paid twenty grand in taxes the year before, I probably could have jammed it through” and that he now gets his home financing, “almost exclusively through… wealth managers.” Victor recognizes that most of the complex-income borrowers out there don’t have the fourth door as an option.

He told me about a friend's son, a plumber earning well into six figures with more than a third of the price saved for a down payment on his first home. He still can't get a loan without his parents co-signing. People like him don’t have a fourth door.

During my years as a loan officer, I was door number three. I remember shopping tough files with multiple lenders. Those kinds of files chewed up tons of time. Like most brokers, I was on pure commission, so the opportunity cost was real. The harder files got my leftover hours.

For someone with complex income, an approval requires a series of judgement calls over a stack of documents and lender guidelines. It almost always works better when an expert deeply analyzes the file before it is submitted to underwriting. But expert analysis is very expensive human time, so like it or not, the industry tends to give extra attention only to the relationships that pay. Deposit-tiered rate discounts are evidence of this in plain sight. This isn’t malicious, it’s simply math.

AI is changing what it costs a licensed human to read a file carefully. It shouldn’t require an eight-figure account for your loan file to be deeply analyzed and pre-underwritten at the beginning of the mortgage process. At Adeft we’re building toward this.

Which door did you walk through to close your last mortgage? Did it work? I’d love to hear from you about your experience. Reply with the number of the door that led to your mortgage. I’ll publish the tally.

More soon,

Jeremiah

*Victor is a pseudonym, used to protect his privacy