On today’s show we’re talking about how borrowing is like dating with the intention of getting married. No, we’re not talking about casual dating, or any extra-marital hanky panky. I know what you’re thinking. That’s a strange analogy.
You see at the heart of a loan is a relationship. It’s a relationship that culminates in a signature on several hundred pages of documents. The advancing of funds is like the honey-moon.
But before we get ahead of ourselves, let’s talk about the natural progression of the relationship. Imagine for a moment, the you have a friend who is going to introduce you to someone really special. They’ve told you about this person and they sound perfect. They share the same values, they like the same kind of cooking. Your friend keeps passing messages back and forth between the two of you. But the two main parties to the relationship haven’t spoken yet. You haven’t met, you haven’t gone on a date, you haven’t had dinner together, you haven’t been able to ask for yourself what the other person likes and dislikes. But still, your friend insists that this person is the one for you. You can stop looking, you’ve found your future spouse. Look no further.
In our example here, your future spouse isn’t really someone you’re going to marry. They’re your potential lender. You friend is the mortgage broker. The broker is in the communication path between you and the lender. You haven’t met the lender yet. You don’t know what the lender wants. You haven’t seen a term sheet, or a closing checklist. Still the mortgage broker insists that this is the perfect lender for you. Not only that, they insist that the lender is going to get you a term sheet in the next day, and they can close in just a few days. Two weeks go by, and you still don’t have a term sheet. You still haven’t met the lender. All communication has been through the broker.
When you build a relationship with the hope of marrying someone, there are a series of steps in the natural progression of that relationship. You would want to spend considerable time together. You might travel somewhere on vacation together. You might play a board game together. Seeing how competitive your potential partner is in a game of monopoly might tell you a lot about If you try to skip steps in that process, the risk of the relationship failing go up. If you try and rush it, the risk goes up.
I know that in certain cultures there are arranged marriages. The families act as brokers between the ones who are to be married. But here too there is a process. There are a series of steps that culminate in marriage.
When you’re contemplating a loan, the term sheet is the very first step. Upon signing of the term sheet, you’re now officially dating. You’re not engaged yet, that comes later. There’s a whole pile of due diligence to be done. You need to find out about your partners finances. Do they know how to manage money? Do they have good taste in food? Have you met their family?
Once the term sheet is signed, there might be a commitment letter. This is the point where you’re now engaged. Subject to a few due diligence items, you’re going to get married and you’re going to get the loan, you’re going on a honeymoon.
There are a number of items that are an expected part of the process. If one or more of those are missing, you can tell that you’re not heading towards marriage, and you’re not going to get the loan any time soon.
Perhaps your future spouse has given you a list of values that they find important in their future spouse. If you haven’t seen your future spouses’ list, then how do you know you’re right for each other?
That’s the same as the lender’s closing checklist. I know you’re thinking that the spousal checklist isn’t very romantic. I’ll grant you the possibility that the analogy doesn’t capture the romance aspect.