Is it hard for traders to get loans/credit?

Discussion in 'Professional Trading' started by dv4632, Nov 9, 2012.

  1. dv4632


    If you're an independent trader (either at home or prop) is this a big problem? Since your income is unpredictable it's possible that many lenders (or landlords even) would not want to deal with you.

    If you have a high enough net worth, or make far enough into 6 figures a year, or into 7 figures, then obviously you shouldn't have many problems.

    But for many aspiring traders who seem to simply want to replace the income from a job this seems like a risky proposition. My thought has always been if I can't expect to make 2-3 times what I could make in a job then this isn't worth pursuing.

    If you're making 50k a year in a job and transition to making 50k a year as an independent trader, that could mean some big changes in your life. Not only a loss of benefits at work, but getting car loans, a mortagage, or even being able to rent an apartment could become big obstacles.

    Anyone have any personal stories of how being a trader impacted this aspect of their lives?
  2. For an at home trader without substantial assets pledged as colllateral it's impossible in the current environment. The only way to do it is to fake employment for the last severalyears.
  3. I have found out the following when applying for (big) loans while being a trader:

    Deposit every week or month the same amount in one of your bank accounts for a year or two, three.

    When you apply for a loan, you are selfemployed, and if they ask you what you do, you say that you sell and buy securities. When they ask how much you make, you tell them the amount you have put in your bank account for the last two, three years or give them your tax return.

    The loan officers, banks and leasing company's will treat you like any other business person.

    If you just tell them you are a fulltime trader, they will not take you seriously.
  4. emg


  5. I talked this week to my neighbor... a senior executive of a company with $25 Billion/yr in sales... based upon what he said about "getting credit in this environment"... you've got less than the proverbial "snowball's chance in Hell".

  6. I'm responding from the UK.

    Having just gone full time trading, I'm finding the same problem.

    I like the advice about being claiming self-employment and depositing cash every month so as to show stability - thanks for that, great tip.

    I have cash in the bank and having just finished my notice period and handing in my company car thought it would be easy to get finance, but not so...I guess it's cash-only deals for the next 3 years until I've built up some decent history!

    Oh well...sitting at home each day doing this is worth it!
  7. garachen


    I had a *wonderful* experience with this. Last year I went to buy a house. I'd done this before when I had a W-2 job so I thought it would be pretty easy. I called up a few places including Bank of America where I used to work and started sending them my tax returns. They all promised the world and said it would be no problem.

    The problem starts when it gets to underwriting. Your typical underwriter can't distinguish between "investment income" and "trading income". Everything is viewed as capital gains (bad income). After 3 months of hassle and talks with the underwriter where I even had the head of Chicago underwriting call my California underwriter to explain to her how a trader's income really works it all just failed.

    In the end - get this - they said they would need to see 10x my ANNUAL income in savings in order to justify my capital gains income. I pressed them on this saying... "so if I make $1 Million a year you need to see $10 Million in savings. But it I make $5 Million you want $50 Million in savings."

    Did it matter that this made no sense - no. Did it matter that I demonstrated I could cover the purchase price of the house in cash if I wanted to - no. I told them that under these conditions Warren Buffet would not be able to get a home loan through them if he happened to make too much one year. They agreed that yes, he would not.

    So, yeah, unless you live in Chicago or New York where you might get an underwriter who understands this stuff it's pretty much impossible.
    VPhantom likes this.
  8. The ONLY way to get a loan as a at home trader is to create a company and have the company pay you via W2's yearly for the last 3 years.

    Unfortunately, there is no more lending to the self employed in the United States without substantial outside collateral. In other words, if you need a loan, you WILL NOT qualify as a self employed person.

    The days of tax returns being accepted as income or bank statements are long gone.

  9. I've resorted to just doing all-cash deals for everything, even a home. It's hard to keep a perpetual edge in the market, so I sort of lean with the banks on this one. On the flip side, if you did have an all-cash deal on a home, there's not much to worry about other than property taxes, food, and health/car/home/etc insurance. That's a low enough bar that even scrappy market edges can cover those.
  10. I just bought a house and I have a full time was hard enough with a job, I can't imagine it being self employed. There were so many issues, every big deposit they wanted to know what it was and every large payment on my vehicle loan they wanted to know where the money came from. It was very detailed. The only thing that bothered me the most was my DTI was off by like .3% after the property taxes came in and they gave me grief about it for a couple days saying they couldn't make the loan more than likely. They had almost ZERO risk though considering the loan was for less than half the homes value. Luckily that is what I ended up pushing to the underwriter that they had such a small amount of risk it was unreal they would think twice on it.

    I was thinking about what if I was a full time trader during the whole process that this would be a nightmare if all I had was trading income. I guess the only option is save up enough to pay cash for everything big. I am sure you could get a car loan and stuff easy though lol just a good credit score and proof of income and you are in business at a lot of places.

    EDIT A big part of the difficulty in getting the loan is I am 20, underwriters are a bit skeptical I'd say of someone young buying a house lol
    #10     Nov 28, 2012