Thursday, August 2, 2007

Tip To Borrowers - Lenders Can Do Math!

I don't make a habit of picking on specific borrowers, but after writing a few tips for borrowers, I wanted to highlight what not to do. In this listing, the potential borrower wants a loan of $8000 and claimed a gross income of ~$16600 and listed expenses of ~$5000.

MY INCOME and EXPENSES:I make about $200,000 per year and my husband stays home with the kids. My expenses Mortgage ($2,500/mo), Insurances (300/mo), Utilities (500/mo), Two car payments ($757 and $712/mo respectively), three credit cards that never really have much of a balance (maybe $100/mo payment), Student Loans ($170/mo). I also have to cover some of my own travel in my income I stated as well as pay my taxes.

Even ignoring food and leisure, quick math implies that there should be some money left over (pessimistically assume taxes average 35%). $16600 * 0.65 - $5000 = $5790. So why do you need the loan again? Ah, yes, that little detail about covering travel expenses.

thank you for your question. I have to pay for my travel expenses out of my income and since I travel 100% of the time, typically my expenses for a month are around $6,000 or $70K per year. I also have to pay my taxes on my income as I am self-employed. I end up with some extra money per month which I try to put into the kids' education fund and save for vacations as well as a regular savings account. I could go for several months without work since I am a contractor & rely on savings.

Oh, yes, that one expense that's greater than all the other expenses combined. Yes, that's why they need the loan. Would the inclusion of this expense stop me from bidding? Nope. Would the act of ignoring a significant expense make me wonder what else the borrower is failing to disclose? Yup. Will this stop me from bidding? You betcha!

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