Saturday, November 26, 2011

Q&A With The Doc: How Can I Get a Loan if All my Assets Are in Phyzz?

Jerry writes:

Doc, I have a question. I want to buy a house and the lending institution wants a financial report as to my net worth. How do I explain to them I have a million dollars in silver & gold locked up in my safe? Without this disclosure I might not be qualified for a loan being most of my assets are in PM. What are my options?

Great question Jerry, and one that The Doc actually experienced himself first hand about a year ago.  The asset/net worth requirements vary greatly between financial institutions.  One bank in particular required the cash used for the down payment to be sitting in a savings account for at least 6 months!  (Who leaves $30,000-$70,000 inflating away in a 0.00001% interest bearing savings account for 6 months!?!) 
Even the banks that are more "lenient" in their requirements want financial account balance statements- meaning cold hard cash will not do if it hasn't been sitting in your bank account, so you can forget about using phyzz.   Most of the financial guys working the desks of these banks that The Doc came across didn't even know what gold and silver are, and didn't even have a clue as to what affects interest rates!  (The lender couldn't figure out why the November 2010 FOMC meeting/announcement (QE2 announcement for those who forget) would have an effect on interest rates, or what I was talking about. LOL)
In The Doc's case, I advised prospective lenders that most of my net worth was tied up in "physical assets" that were not easily/ quickly liquify-able, and implied that I meant real estate (land).  The days of stating your assets with no documentation are long gone.  Most of these banks have been burnt so badly by the housing bubble collapse that they now require ridiculous documentation and have strict lending standards in place. 
As far as physical assets- These guys all wanted the receipts/ deeds of purchase.  Needless to say, The Doc did not make photocopies of his phyzz purchase receipts and report his phyzz as assets.  I ended up using only the trading account that holds my mining positions as my "total" net worth. 
Please also consider the potential safety implications of telling a complete stranger that you possess over $1 million worth of precious metals in your own home.  This is NOT information you should be sharing with complete strangers if you do not want to be led to your basement with a gun to the back of your head and your vault emptied.
For those who are 100% in phyzz, another option is FHA financing.  These federal geniuses are still giving out housing loans with only 3.5% down.  You should be able to save up 3.5% for a down payment in a few months, or sell a small portion of your phyzz if absolutely necessary to reach this amount.
Finally, The Doc would ultimately recommend that you still hold off on purchasing a house unless absolutely necessary (as was The Doc's case due to an unexpected family addition) as the housing market still faces massive declines vs. hard currencies such as gold and silver over the next 5-10 years.
There will come a day when you will be able to borrow money against your phyzz.  There will come a day when a small corner of your stack will be welcomed as collateral vs. the piles of paper assets offered by the general public.  That day is not here yet, the paradigm shift is not yet complete. 
Hope this helps, and good luck with your housing search/ purchase.