Sunday, October 30, 2016
How much do I need to tell my prospective lender?
For more than 30 years, JLK, a reader from Georgia, has been working hard at his job. He's been contemplating retiring next year or the year after. Right now, JLK rents an apartment, but he has his eye on buying a foreclosed house in a neighborhood close to family members.
At first, JLK planned to wait until retirement to attempt to buy the house. Given that he'd need a mortgage to afford the purchase, he figured that a lending institution would be less likely to offer one to someone who is retired and on a modest fixed income from his retirement savings.
Based on this perception, for a while, JLK decided that trying to buy the house of his retirement dreams was a nonstarter. But then a friend asked him why he planned to wait until he was fully retired to buy the place. Aside from having to move all of his stuff while he was still engrossed in his full-time job, JLK couldn't think of a compelling reason to wait.
"A bank is much more likely to offer you a mortgage when you're still working and bringing in your salary," JLK says his friend told him.
True enough, JLK thought. But given that he knows he might retire in a year or two, he wonders if he's obligated to tell the bank of these short-term plans when he applies for a mortgage.
"Would it be wrong to ask for a mortgage based on my current salary when I know that that salary is very likely to be substantially lower in a couple of years?" he asks.
JLK is concerned that if he withholds the information from a mortgage lender about the fact that he might soon decide to retire that he would be misleading the lender. Somehow that feels a shade of wrong to him.
Focusing on the "might" in JLK's comment about soon retiring is helpful in responding to him about the right thing to do in this situation. While he indeed might retire in a year or two, he also might decide to put that action off for longer. He might do a lot of things that could affect his financial condition in the future -- run up credit card bills, pay for a pricey cruise by drawing down some of his savings, skip a car payment or two. Right now, however, he's still working and still drawing a salary and that, plus his other financial history, should be what he provides to any place he applies to for a mortgage.
If JLK wants to try to buy the house and he can afford to do so by obtaining a mortgage, the right thing is to apply for one and go from there.
Putting the purchase off because of what might or what might not happen may result in JLK losing out on something he really wants. "Life moves pretty fast," the eminent philosopher, Ferris Bueller, once said. "If you don't stop and look around once in a while, you could miss it." JLK should try not to miss out on this opportunity.
Jeffrey L. Seglin, author of The Simple Art of Business Etiquette: How to Rise to the Top by Playing Nice, is a lecturer in public policy and director of the communications program at Harvard's Kennedy School. He is also the administrator of www.jeffreyseglin.com, a blog focused on ethical issues.
Do you have ethical questions that you need answered? Send them to email@example.com.
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