Why Volunteering Matters to Us

Old Second’s Carrie Niesman receiving the Oswego Chamber of Commerce 2017 Volunteer of the Year award from Cory Holstead- Chairman of Board – Oswego Chamber

Carrie Niesman, Vice President—Regional Manager

Recently, I had the honor of being recognized by both the Oswego Chamber of Commerce and the Illinois State Senate as a 2017 Volunteer of the Year. It’s the third time I’ve received this distinction, which just further motivates me to keep contributing toward the enhancement our communities.

How We Pay It Forward

Being an agent for positive change is important to me. I grew up here, I live and work here, and I’m raising my family here. Volunteering is my way of ensuring that everything my family and I have received from and enjoy about our area remains available to help future generations flourish. I believe in paying it all forward.

As important as community involvement is to me, I appreciate that it is also a priority to my employer. Being involved in the communities we serve is part of what makes us Old Second bankers—and an aspect of the job I thoroughly embrace.

Old Second has deep roots in this area. It has been instrumental in the development of the neighborhoods and businesses that make up our communities. The bank sponsors a number of events, supports fundraising for organizations and accommodates employees like me so we can donate our time and energy to causes and activities that benefit customers and community members. This commitment lies at the heart of our company’s core values.

It’s the bank’s support that enables me to hold a variety of board positions in the areas served by the branch offices I manage. As a member of the Chamber of Commerce in Oswego, for instance, I’m able to meet regularly with many area business owners. These relationships help me understand the current challenges and opportunities local businesses face, which enables me to customize solutions to meet their needs and be a better banker.

Passion Gets Things Done

I am as passionate about being a representative of a community bank as I am about fulfilling the missions of the organizations on whose boards I serve to make positive impacts on our communities.

To learn more about what Old Second can do for you, and how we are involved in your community, contact me at 630-385-6697. I can’t wait to discuss what we can do together.

Carrie Niesman is currently:

  • 2017–2016 Past President/Club Advisor of the Oswego Junior Women’s Club  
  • Vice Chairman of the Board of Directors for the Oswego Chamber of Commerce
  • Co-chair for the Ambassador Committee for the Oswego Chamber of Commerce
  • Ambassador for the Yorkville Area Chamber of Commerce
  • Committee Member for the W2W (Women in Business) group of the Yorkville Area Chamber of Commerce
  • Secretary on the Board of Directors for Oswego Panther Youth Basketball Association
  • Member of the Oswego Police Commission


The Game-Changing Benefits of Predictable Cash Flow

David Mottet , First Vice President—Commercial Lending 

To understand the dynamics of small business management, you need to look beyond your revenues and focus on how quickly cash flows through your organization. Because, if your company comes up with insufficient cash to operate at the end of the month, it really won’t matter that your business’ earnings hit a new high the month before. That’s why you need to keep your eye on your operating cash cycle to get a better gauge on the health of your cash flow.

The Lifeblood of Your Organization

The operating cash cycle represents the length of time your cash is tied up in working capital, including the inventory cycle and the accounts receivable cycle. For most businesses, it takes somewhere between 40 and 60 cents in working capital investment to generate one dollar in new revenue. This is the basic premise behind achieving sustainable growth.

Your growth capacity is determined by your working capital surplus. But the “timing of cashis also a factor. Operating cash cycles are the circulatory system of your business. If cash is not flowing smoothly through the system, the patient weakens. If cash flow stops all together, the patient’s viability is at risk.

Assessing Predictability

To gauge the strength of your current operating cash cycle, ask yourself the following questions:

  • How would your day-to-day operations be impacted if your clients made their payments within 24 hours of receiving your invoice?
  • How would truly predictable cash flow affect the ability of your company to add staff or other resources?
  • How would paying all accounts within five business days impact your ability to negotiate better prices and discounts with your vendors?

If you are like most managers, answering these questions led you to a better place than you are right now. Once you know when you will receive payment, you no longer need to juggle payables and other business obligations. You begin to control your cash flow rather than being controlled by it. That’s where the value of having a predictable cash flow leads.

The Benefits of a Predictable Cash Flow

Business owners typically realize five major benefits from achieving a predictable operating cash cycle.

  1. Reduce managerial stress. Just as with personal finances, a lack of money can lead to stress in a business. You start to worry about your employees just as you would your family.
  2. Build stronger business relationships. Once you take control of your operational cash cycle, you can begin to nurture valuable relationships with both vendors and clients. This can often lead to earning better pricing through prompt payment.
  3. Experience debt reduction. Predictable cash cycles in a business enable you to pay down term debt more quickly, as well as other short-term obligations. In time, your business can become totally debt free, and, as an owner, you become an investment and cash management client rather than strictly a borrower.
  4. Improve staffing flexibility. During times of uncertainty, the last thing a business owner wants to do is commit to paying annual salaries for new employees. Predictable operational cash flow enables you to hire with confidence as growth opportunities arise.
  5. Realize growth in sales. Businesses must have working capital to support expansion. By making operational cash cycles more predictable, one key barrier to growth is removed. Consistent cash cycles provide you with the opportunity to expand your sales more easily, given market demand.

To gain firm control of your operational cash flow and the resulting benefits of predictable payments, Old Second offers business clients access to the BusinessManager® program. This online program allows you to get cash for your accounts receivable deposited directly into your bank account by selling them to the bank at a discount. Essentially, it allows you to quickly turn your invoices into cash, makes your cash flow more predictable and enables you to negotiate better terms from your suppliers. The result is a much stronger operating cash cycle and healthier finances.

To learn more about this game-changing program and the other cash management strategies available at Old Second Bank, contact your lender to set up an appointment. We can’t wait to show you the difference it can make.

4 Things You Need to Know About Cryptocurrencies and Block Chain

Brad Johnson, CFA, CFP®, Vice President/Senior Investment Officer

Thanks to the surge in the stock prices of cryptocurrencies like Bitcoin—and the technology companies that allow for its use—conversations around this topic often get emotional. Some are gripped by the fear of missing out on an opportunity to “get in on the ground floor,” while others quickly dismiss the volatile stock prices as evidence of a growing bubble, much like the dotcom era of the early 2000s.

The reality, however, can be found somewhere in between, and the conversation is far from over. To help inform the discussion, here’s what you need to know about cryptocurrencies and the technology—block chain—that makes them possible.

#1: The Technology Is Legit.

Block chain, is both legitimate and of real significance. It has the potential to change how business is transacted and information exchanged, resulting in an instantaneous and verified transfer.

It also creates a decentralized payment system that cuts out the middleman, the Federal Reserve system, in particular. This is the inverse of the current financial system in which the central bank makes decisions regarding monetary policy. This efficiency will have many applications, including reducing opportunities for fraud and lowering cash management costs. However, the technology and its use are years away from being able to support widespread adoption of block chain transmissions. That said, it’s well worth keeping an eye on the companies that are at the forefront of making block chain an eventual reality in day-to-day payment systems.

#2: Bitcoin Is Not the Only Cryptocurrency in Town.

There are thousands of cryptocurrencies, but Bitcoin is the most well known in its rapidly expanding universe. Cryptocurrencies are not on equal footing with currencies like the dollar, however. They are issued in fixed amounts—like trading cards. Their value rises and falls with demand for their limited supply. That undermines their use as a store of value. Currently, there are no regulatory bodies in charge of cryptocurrencies and no exchanges on which they trade. This creates a “wild west” of sorts—similar to the U.S. banking system prior to the 1900s, when individual banks, as well as the U.S. Treasury, issued currency. It will be a while before standards are in place enabling cryptocurrencies to function on equal footing with country currencies and “winners” emerge among the thousands of options.

Also important to note is that because of the outsized attention that speculation in the coins has caused, the public has a misperception about the influence this payment option has on the economy and world markets as a whole. It is still in its infancy and much too small to move global markets at this point.

#3: Cryptocurrencies and Block Chain Are Not Able to Replace the Current Financial System.

While the technology is exciting and has a role to play in the future, we think it’s more likely that cryptocurrencies and block chain will be a payment tool that resides within the current monetary system. Consider that because the coins are finite, the payment and its receipt are immediate—and it occurs on a one-to-one basis—there is no opportunity for lending.

The current global financial system operates with an infinite amount of currency. Central banks, like the U.S. Federal Reserve, have mechanisms for expanding and contracting the money supply to support the economy through borrowing and lending activities. Loans—whether between banks, countries, or banks and their individual and corporate borrowers—are a key part of the system. Without lending, there are no mortgages or car loans—credit that creates the liquidity necessary to increasing economic wealth. That, in turn, would not be good for economic growth.

#4: Participation in Cryptocurrencies Is Limited.

Regulated wealth management firms like ours are prohibited from acquiring and holding cryptocurrency positions for clients. There just is no mechanism for us to do to so as a fiduciary. Also, the cryptocurrency world is currently plagued by fraud and confusion since anyone can issue coins. Pyramid schemes have also been increasing. What we can do for our clients is monitor and suggest investment—where prudent—in the companies involved in developing block chain technology and the applications that will eventually emerge.

It’s Too Soon

There is little doubt that, at some future point, cryptocurrencies and block chain will become part of the mainstream financial world. However, adoption of block chain and cryptocurrencies is not imminent. The technology and its use are years away from being able to support widespread use. How the system will work, who will use it, which currency or currencies will be adopted, and the opportunities they will give rise to, however, are something we continue to monitor closely.

To stay current on the latest developments impacting the investment world, consider subscribing to our weekly newsletter. Our Wealth Management representatives are also eager to answer your questions about opportunities to grow your invested assets. To reach us, call 630-906-2000 or visit us online.

Attracting and Retaining Skilled Employees

Sean O’Connor, First Vice President/Retirement Benefits 

With the current robust economy comes a tight job market. While that may be great for revenues, it also brings the added pressure of attracting and retaining skilled staff members. Whether you are trying to entice good workers to leave the jobs they have to join your firm or want current employees to stay, it takes a more than salary and a pleasant workplace. Having a good employee benefit plan helps make your case.

The Thing About Millennials

Millennials, the generation that is currently flooding workplaces as the pace of Baby Boomer retirements starts to percolate, may have a reputation for being swayed by the promise of an office foosball table and Taco Tuesdays, but that is not all they want. A key characteristic for this demographic is that they are savers, and many have already begun saving for retirement. As self-guided learners, they are already looking for more sophisticated strategies and advice on retiring. They want to be prepared to “win” retirement—and a potentially early retirement at that.

As an employer, this makes your plan, and its attractiveness in meeting your staff members’ long-term goals, even more critical to your company’s continued growth and expansion.

Closing the Gaps

As a wealth management firm, we have been creating and administering employee retirement plans for decades. That includes establishing, monitoring and administering defined contribution plans, or 401ks and 403Bs, for our business and municipal clients.

With a highly “seasoned” staff—some of us started our careers with larger global consulting firms and research groups—we have an unexpectedly deep bench when it comes to our in-house capability for structuring customized new employer plans for clients. We can also provide consultative services that lead to recommendations for strengthening the retirement plan you already have in place to make it more appealing to participants of all ages.

Easy Access to Answers

Recently, we’ve been making the biggest difference for our plan sponsor clients by bringing their plans up to the technological standards workers expect, especially those that are younger and tech savvy. Millennials, in particular, are information miners. They expect to find the answers they need to questions as they occur to them, online and through a mobile device. Then, they want to be able to contact a person for a one-on-one conversation. We accommodate that.

Through a variety of vendor relationships, we strive to create a seamless and intuitive experience for your plan participants. This enables them to trade online and access research on their own. It also provides the tools and apps that help them focus on achieving their financial wellness goals. Given our own community banking heritage, we are also available to take calls and meet on-site to address their questions and provide the educational assistance that enables participants to get the most out of their employer plan.

Investment Guidance

As a division within a commercial bank’s trust department, we also offer two more advantages. Fiduciary duty is part of our DNA. We are required by law to operate with fiduciary responsibility at every level of our business. This isn’t something new for us; it has always been part of our service.

Secondly, being a wealth management provider, we are also able to leverage the market research and investment knowledge of in-house experts to the advantage of your plan. That expertise can help in structuring the plan and choosing the most cost-effective investment options for you to offer. Beyond fund selection, the fact that we monitor markets and investments daily can lead to a quicker reaction to shifts in market and economic fundamentals. Many of our plan sponsor clients find that added responsiveness and proactive involvement relieves them of the extra responsibility and pressure to conduct their own monitoring and investment reviews.

We Simplify Plan Sponsors’ Lives

We also help keep compliance testing in line with ERISA compliance and monitor costs related to the investments and to the plan’s operation. After all, controlling costs creates more of a growth opportunity for participants. Although, we also recognize it isn’t always about the price. It’s about being able to deliver participants to their goals and providing plan sponsors with the services and support they need—from access to the best investment platforms to on-site education and consultations.

Whether you want to ensure your current plan remains competitive in today’s battle for workers or you think it’s time to add a plan, visit us here or, better yet, give us a call at 630-844-8655. We can help you stay competitive and keep your employees on track to achieve the retirement goals.

A Wealth of Experience

Jacqueline A. Runnberg, CFP®, First Vice President/Wealth Advisor 

When it takes a lifetime to build a legacy, it’s only natural to want it to last for generations, along with the advisor you entrust with it. What many people don’t realize about Old Second Bank is that we are that advisor. Not only are we the largest provider of personal fiduciary, investment management, wealth management, and trust and custody services in the western suburbs, we were also the first. We are literally second to none, having been in the trust business since 1919. In fact, we currently have $1.16 billion in assets under management for our clients (as of 12/31/2017).

Expertise You Can Trust Close to Home

For nearly a century, Old Second has consistently delivered wealth management solutions to the families that formed the communities we all now call home. While we’ve consistently provided a full range of highly personalized solutions, many of our competitors in this area have exited the business over the decades. Many others consolidated into larger banks and, in the process, shifted their services to central locations outside our area. Meanwhile, at Old Second we have continued to pursue our strategy of providing personalized, well-informed and comprehensive wealth management services close to home.

Our wealth managers and investment professionals average more than 20 years of trust and investment experience. We have the depth and breadth of knowledge to provide all the wealth management solutions and services you need while maintaining the balance of personalized services you expect from a bank in your community.

A Common Sense Approach

When it comes to wealth management, it’s a matter of trust, and you can trust us to take a common sense approach that rests on a comprehensive process for delivering services. These services include:

  • Using a financial planning-based approach, we Identify your specific life goals and financial objectives and assessing your current circumstances.
  • Communicating with you every step of the way and listening to what you have to say rather than talking at you.
  • Involving you, your family members, your beneficiaries and your other financial professionals when appropriate and according to your wishes.
  • Investing the time to build a lasting relationship with you and each generation of your family.

Sound Advice

With a seasoned staff of professional wealth managers, we provide advice regardless of where you are in your financial life—from young families just starting to build wealth to those who are planning for their wealth’s transition. Our distinct and comprehensive approach brings a team of credentialed specialists together to provide advanced financial planning, investment and money management, tax planning, estate planning and administration, charitable giving and wealth transfer. Over the decades, individuals and families like yours have placed their trust in our consistently sound advice as they’ve built and shaped their legacies.

Whether you’re in the early stages of building wealth or looking to preserve the wealth you have, visit us here  or, better yet, give us a call at 630-966-2462 so we can start proving to you that we truly are second to none.

The Generation Gap in Wealth

Rich Gartelmann, CFP®, Senior Vice President and Head of Wealth Management Rich Gartlemann Bio Picture

Money may be ageless, but how it’s viewed, invested and spent can depend on when we were born. Attitudes toward money develop early and are influenced by our parents. They can also be shaped by the social and political events that affect “our” generation as we enter adulthood.

This combination can also affect how we plan our financial futures, the amount of risk we are willing to take and, ultimately, the types of investments that enable us to sleep well at night. If left unchallenged, some of these tendencies may also keep us from realizing our financial goals.

Looking Through Different Lenses

At a very high level, it helps to consider how financial experiences may have varied across the last several generations—generations to which many of our family members belong.

The Silent Generation

For many in this age group, their earliest memories involved economic hardship due to the Great Depression, followed by rationing during World War II. Their early adulthoods then coincided with more “war” years— Korean and Vietnam. It’s little wonder that these experiences seemed to find expression in a tendency to be conservative and save both cash and provisions for the next threat. Many ended up being able to retire early, supported by company pensions, Social Security benefits and interest on their savings, though perhaps they didn’t take the risks or have as many experiences as they would have liked.

Baby Boomers

Baby Boomers grew up under very different circumstances. Their childhoods coincided with a post-war boom, while their adulthood coincided with a time of high inflation. It conditioned many to buy what they wanted “now” since they might not be able to afford it later, which may have led to the material-driven lifestyle choices associated with this generation. As they head into their retirement years, some Baby Boomers may still focus more on enjoying what they have while they can. As a group, they tend to tolerate more risk and be more trusting of the stock market and of things working out. For many, retirement can be more about what they will do next than actually a time for slowing down.

Gen X

As teens and young adults, Gen Xers witnessed—and many have been victims of—multiple manias and crashes at key times in their financial lives. These include the 1987 market crash and subsequent recession as well as the bull market of the 1990s, followed by the dotcom debacle, not to mention the many Wall Street scandals. Then, they experienced the 2008 recession and housing crisis! Because of the timing, many in this generation have had a harder time accumulating wealth than those in the Baby Boomer and Silent generations. Overall, Gen Xers are often characterized as distrustful when it comes to wealth and investing. Some may even need to be convinced the future is something you really can successfully plan for.


Millennials were children or just entering adulthood at the time of the September 11 attacks. They may have seen their parents and their friends’ parents struggle with unemployment and housing issues during the recession and housing crisis of the late-2000s. As young adults, many continue to deal with student loans. In general, they have been slower to reach traditional milestones—from marriage and starting families to buying a home. However, they are moving forward and seem focused on planning ahead and perhaps having a side gig, just in case.

Gen Z

Gen Z, today’s children and emerging adults, has never known an app-less life. Even more than Millennials, they trust technology and “off-the-grid” solutions, including cryptocurrencies, virtual payments and crowdsourced funding. They are also said to be savers and leery of debt, determined not to repeat the “mistakes” of generations before them.

Customized to You

When you look across generations from this very high level, what becomes clear is that aspirations, needs, comfort levels and attitudes toward risk can vary widely. While intentions may be good and accepted actions logical in the context of the times, each group can benefit from taking a broader perspective when planning ahead. Creating that broader perspective is what advisors do especially where multigenerational family wealth is involved.

While members of each generation may seek different things from their money, we know they all want the same thing from their advisors—sound advice customized to their unique circumstances, attitudes, aspirations and needs. That advice often needs adjusting for personal preferences and to create a shared appreciation of how different members’ perspectives factor into a family’s plan for the future.

For more information on our approach to delivering goal-driven wealth management services across all generations, visit us here or call 630-906-2000.

Second to None By Putting Clients First

Juwana Zanayed – First Vice President – Director of Treasury Management Sales 

When the word “second” is in your name, it isn’t really a matter of trying harder—it’s about taking a “second-to-none” approach in everything you do. For this $2.3 billion bank, that means not just keeping pace with industry innovations, but also finding ways to get the latest products and services to our clients as soon as they emerge.

Local to You

This concept of timely delivery is a key component in serving as a niche provider for mid-market businesses. Old Second’s local executive management team helps deliver solutions when the client needs them. From Aurora to Chicago, from Elgin to Joliet, Old Second has provided timely solutions for our local clients.

Businesses also want an accessible treasury provider, not a distant figure you might expect from a large bank, headquartered far away. Availability is one of the hallmarks an Old Second client can depend on, year after year.

Being local to our clients also means our business operates in the same market their business operates. We understand market forces that are unique to our geographic footprint. That firsthand knowledge of the client’s immediate market puts us at an advantage over an out-of-state decision-maker.

Consistency Works

Over 50 percent of our current commercial banking clients have been with us for more than 10 years. Such continuity in a relationship means familiarity. As a business, you don’t want to retell your story over and over. You’d rather work with a bank that already knows you, where you’ve been, how you’ve grown and where you’re headed.

Lasting relationships also mean our clients like what we’ve done for them. We like to think of the longevity of our client relationships as a signpost to the effectiveness of our solutions. Think of a product you have used for years when you could have chosen an alternative. You stick with what gets the job done. Our years of client loyalty speak to the success of our business model.

Decisive and Customized

That’s why customization to the client’s business makes sense. Our loan officers and treasury management advisors are empowered to take direction from their clients. Because we are local, accessible and have a large suite of innovative solutions, we are equipped to provide fitted solutions.

We consider many aspects of a business, including cash flow, automation processes and mechanisms of fraud prevention. And, each aspect of the business is examined in light of maximizing the client’s bottom line.

Once a specialized product suite is assembled, each client is able to manage every aspect of their business via O2 Online Banking. It’s a one-stop-shop dashboard that puts control in the client’s hands. We consider it all part of our “second-to-none” approach.

For more information on our treasury management and commercial banking services, click here, or contact a Treasury Management Advisor directly at 877-866-0202. We can’t wait to talk to you about what we can do to keep your business growing.

National Data Privacy Day: 8 Tips for Keeping Your Personal Information Safe

Robert M. Duplessis, CRISC, CISM, CBVM, Senior Vice President—Information Security Officer 

January 28 is National Data Privacy Day. Its observance serves as a reminder that maintaining the privacy of your personal information is a year-round responsibility.

What’s at Risk

At the heart of the battle for your privacy is your personally identifiable information (PII). PII is any combination of data points that can lead to your identification. The more information a hacker can pull together on you the easier it becomes to obtain more, with the goal being to steal your identity.

This information may include your email address and full name—data readily available online. But, it also includes your:

  • Social Security number
  • Driver’s license
  • State identification
  • Financial account numbers
  • Medical information
  • Passwords
  • Address
  • Cellphone number

Companies like ours work diligently to protect your privacy and your data. We only collect the information we need to do business with you. We safely dispose of personal information when it is no longer needed. Unless required by law, we do not share your information without your permission or knowledge. (For more on Old Second’s privacy policies, click here.)

Every website, health care provider, insurance and financial company you deal with should have a similar policy. If they don’t or there is something about their policy that makes you uneasy, you should consider doing business elsewhere. However, it isn’t just businesses that collect data you need to be concerned about.

What You Can Do

Protecting your privacy is a shared responsibility. Every time you share your dog’s name or your child’s photo on Facebook, post vacation photos on Instagram or update your new job title on LinkedIn, you are adding to what hackers can find out about you and those you tag. Consider what Alexa and Google Home know! Then, consider how much information would be needed to start guessing your passwords.

The reality is that none of us will stop posting, sharing or using products that enhance our daily lives. What we can do, however, is take some precautions before we do. Here are some things to consider adding to your regular routine that can help safeguard your PII and that of your family members and friends.

  1. Revisit your social media settings. Make sure you know who you are sharing information with and whether you really want to. Also consider living less “in the moment.” Share photos and locations after you’ve left them.
  2. Tag only with permission. Not everyone wants their location and activities broadcast or their children’s names made public. Be respectful of the privacy of others.
  3. Manage your passwords. Change them regularly and refrain from using one to access everything. Many companies and services now use double authentication options. Consider opting into them.
  4. Monitor your credit reports. Whether your information was involved in a data breach or not, take advantage of your ability to order a report for free from each of the three reporting agencies each year. A credit-monitoring service, while an added expense, also may be warranted if your information was hacked, since hackers do not necessarily use your information right away. They may sit on it until your free year of monitoring is up.
  5. Keep your software and apps current. Updates and patches are intended to address vulnerabilities in the system. Also, uninstall apps and programs you no longer use. Hackers could use them as back doors into your system.
  6. Check your credit and debit card charges regularly. As soon as you see something odd, call your card issuer and cancel your card. Replacement cards arrive within days.
  7. Use caller ID. Every piece of information, including your voice, is fodder for scammers. If someone calls you and you don’t recognize the number or the caller’s name, do not feel compelled to pick up. Often, by entering the number in a Google search, you can confirm it was a fraudulent call.
  8. Refrain from clicking through links in emails. While legitimate companies provide links for convenience, you are better off signing onto your online account the way you typically do, just to be safe, or calling the customer service number you have on file for them.

For more tips and information on keeping your personal information safe, we maintain a variety of resources on our website. Also, feel free to call 877-866-0202 . We are always happy to talk through your concerns, privately.

The Truth About Student Loans and Mortgage Applications

David M Kozuh, First Vice President Sales—Residential Lending David Kozuh, Vice President—Residential Lending   Things have changed. But, not in the way many potential borrowers think. Many still think it’s harder to get a mortgage than it used to be. Not necessarily. Despite the Financial Crisis of 2007–2008, banks have been helping homebuyers and owners take advantage of the low interest-rate environment all along. Even Millennials, despite their student debt loads, have been getting approved for mortgages. It’s also still possible to get a mortgage with a down payment of less than 20%. And, first-time homebuyer programs that provide money for down payments may even make it a little easier to afford a new home than in 2008. What Has Changed Since the crisis, the process of applying for a loan has improved. Many lenders, Old Second included, have made initiating a loan request even easier, leveraging online and mobile technology for applications, document gathering and communication. But, the biggest change involves the way an application is now processed. It takes longer…much longer. What could be done inside of 30 days in 2008, may now take longer. No home loan lender is immune—we are all subject to the same regulations. And, it’s about to get a little worse. It’s Not You, It’s the New Federal Regulations Whether you are a first-time homebuyer or an experienced homeowner, in the aftermath of the financial crisis there has been a return to the kind of lending standards—operational checks and balances—that most of us have used to apply to loans for decades. Those standards require time to analyze and verify that each mortgage applicant is qualified for and entering into the right type of loan for their financial circumstances. As of Oct. 3, a new rule from the Consumer Financial Protection Bureau, “Know Before You Owe,” will take effect. It is intended to offer additional protection by ensuring you understand the terms and consequences of your loan agreement at closing. This new rule will add a few more days to the closing process for all mortgage lenders no matter how automated their internal processes are. While a degree of patience has re-entered the mortgage process, we believe it ultimately ensures that you’ll gain full advantage of our expertise. Whether it’s a 30-year fixed mortgage, an adjustable rate, a line of credit for remodeling or a refinancing into a 15-year loan that will help you retire mortgage-free, our goal is—as it’s always been—to make sure you enter into the right financing structure.

Student loans are a reality for millions of Americans, many of whom are Millennials with dreams of becoming homeowners. However, contrary to a widely held belief, the two things—student loans and homeownership—are not mutually exclusive. You can afford to have both, even when you use a mortgage to buy your home.

How Student Loans Impact Mortgages

When you apply for a mortgage, the lender will look at your existing debt. That typically includes outstanding credit card balances, car loans and student loans (whether they are deferred or not). We then look at what you are paying toward each on a monthly basis, versus what your make, to determine how much would be left over to make payments on a mortgage.

Generally, lenders are required by the loan programs not to accept an application if your existing debt-to-income (DTI) ratio will exceed a certain level. The last thing we want is to create financial stress by letting you borrow more than you can comfortably afford to repay. However, there are ways to decrease your DTI that can make it easier for you to both afford and qualify for a mortgage.

Manage Your Student Debt

Student loans, especially those that are part of the federal loan programs, tend to have low interest rates and long payback periods. There are also several repayment options available to you to ensure your payments are affordable. Among these is an income-based option, which ties your monthly payment to your income. As your income changes over time, the payment adjusts to what you can afford. For many, this means that they have lower monthly payments in the early part of their careers. That can leave them with enough discretionary income to make mortgage payments while repaying their student loans.

Student loans can also be deferred, which frees up monthly income. Although, when you borrow, we will still consider the loan in our calculations, typically using a figure of 1 percent of the outstanding balance in our analysis of your monthly debt load. However, if you are considering applying for a mortgage through the Federal Housing Administration (FHA) program, your deferment will not be a factor in the DTI calculation.

Other Preventive Measures

Often, the bigger obstacle to qualifying for a mortgage is not how much student debt you have but how well you’ve handled it and how much non-student debt you are carrying. Before applying for a mortgage, it helps to address these factors first.

For instance:

  1. Have a year or more of on-time payments. Know what you owe, when it is due and whom you are expected to repay. Missing payments or a history of late payments will come back to haunt you when you apply for a mortgage.
  2. Manage your debt. Repay credit card balances and establish a pattern of paying them off in full each month. If you are working through an outstanding balance, look for options that might lower your rate and allow you to speed up your payback period.
  3. Carry only your debt obligations on your record. If you have debt but your parents are repaying it or a portion of it, it should be shifted off your record, where it counts toward your DTI, and into their names. Depending on the circumstances, there are a variety of ways to do this. It’s something your lender can discuss with you.
  4. Don’t focus so much on the down payment. There are many first-time homebuyer programs that were designed to make monthly payments affordable, using a low down payment. For some student debt holders, therefore, it may make sense to save for a 3 percent down payment and direct the rest of their discretionary income toward paying down their student loans before applying for a mortgage.
  5. Don’t assume; talk to a lender. We have access to a variety of loan programs and strategies and know which local incentives you may qualify for that would help your cause. As bankers, we are also able to look at your total financial picture for ways to set you up for long-term financial success.

To learn more about your best options for qualifying for a mortgage, whether you have student loans or not, give us a call at 877-866-0202. Let’s sit down and talk about what we can do to help you realize your homeowning goal.

Borrower Assets: How Much Is Enough When Buying Real Estate?

Jeri Ott, Vice President/Mortgage Loan Originator 

While most discussions about purchasing real estate focus on having sufficient funds to make a down payment, there is more to save for than just this amount. Borrowers are required to show proof that they have sufficient additional funds saved to cover any closing costs and an amount equal to at least two months of future loan payments. This is true whether the purchase involves a primary residence or a vacation home.

Joint Ownership

Buying a property in partnership with someone else can make it more affordable. However, the reserve requirement will be the same as it would be if either individual alone made the purchase. For instance, in the case of a vacation home owned by two families, each may agree to split all expenses and payments evenly. However, the underwriting standards necessary to approve the mortgage will view each owner from the perspective of whether they could carry the entire debt on their own. Each will also be required to have sufficient reserve assets to cover two months of full payments.

A Higher Standard for Income-Producing Properties

When it comes to being approved for a mortgage against investment properties, the liquid asset reserve requirement rises to the amount needed to cover six months of mortgage and tax payments. Even though this type of property typically has rental income that will help cover the mortgage expenses, lenders are required to verify that assets exist to cover the loan should an interruption in occupancy occur.

This need to demonstrate a more substantial cash reserve—which can include bank and brokerage accounts, as well as retirement savings—can also impact homebuyers who aren’t purchasing a home for investment purposes but who are buying a property that is considered income producing. This is a common occurrence in the areas served by Old Second.

Many of our borrowers purchase homes situated on farmable land with acreage rented out to farmers. Others may be looking to acquire a horse farm with the intent of renting out the stalls they won’t be using. More recently, some of our home-buying clients have applied for mortgages on properties that have cell towers on them.

In these cases, not only are higher reserves required, the mortgages themselves may have different requirements, including a need for higher down payments and nonconventional loan structures.

Understanding Before Making an Offer

Whether the property you want to buy is your first home, an investment property or offers the potential for a steady stream of income that will help offset your mortgage payment, talking through the nuances of underwriting requirements with a lender as experienced in nonconforming home loans as they are with conventional requests is beneficial. Higher reserves, different expectations regarding debt-to-income ratios and other considerations—including how much of a down payment you need to gain access to a better interest rate—ultimately affect the amount of liquid assets you will need to have on hand and the interest rate you may be charged.

To discuss your best options for borrowing to fund your real estate purchases, call me at 630-365-5190. Let’s sit down and talk about the best loan structure for your situation.