One thing of which our industry does a terrible job is promoting a sense of optimism among the self-employed. Whether the one-man-band sole proprietor, or the complex, greater-than-25% owner of a multi-million dollar S-Corp, this long-suffering subset of the borrowing population has traditionally experienced stiff headwind in the mortgage process because the objectives of running one’s own business frequently fly in the face of what it takes to qualify for a jumbo mortgage. There are a combination of reasons why this has been the case and we’re going to look at those here, along with what the self-employed borrower and business owner can do to stack the deck in his/her favor when it comes to qualifying for any mortgage, but especially one that exceeds the conforming and FHA loan limits.
I realize the temptation to seek a mortgage at the institution where you have your business checking account may be great, but don’t let convenience trump expertise. As an industry insider, I can tell you right now that I have known MANY colleagues who cannot decipher a business tax return. Simply, you very well could find yourself working with a mortgage loan originator who does not know how to accurately calculate your income and give you the benefit of every qualifiable dollar. Of course, many of the self-employed write off as many expenses as possible in an effort to limit their tax exposure. But beyond this truth, loan officers who do not know how to distinguish between sole proprietorships, partnerships, S-corps and corporations and the documents each require are definitely going to struggle to give the buyer/borrower the benefit of the qualifying doubt. This becomes even more evident when jumbo mortgage financing is at stake because here, nuances in how income is qualified will be investor specific and often single-entity retail banks will not have the flexibility to qualify the maximum percentage of all buyers — their guidelines simply do not accommodate enough scenarios. Inexperienced, uninformed and even lazy loan officers can work at some of the largest banks in the nation. Don’t let the name and the convenience of your checking account’s home fool you.
Understand the Alternatives
At the end of the long, hard workday, some of the self-employed may simply have a really tough profile, one that doesn’t fit neatly into the standard credit box. For them, a loan originator needs to be well-versed in programs that perhaps allow bank statement or asset-backed qualifying parameters. While these are not the stated income loans of yesteryear, some of them compare very favorably to “A paper” options and often we find that these loans are a viable alternative. Once we stop trying to put a square peg into a round hole, the self employed borrower begins to realize how much more in-step these programs are with the way they actually run their business. For some of these options, no tax returns are required. And for a partner who may have many K-1 forms, you can imagine the relief they sense when we actually make the documentation process easier rather than the opposite.
Running a business is challenging enough for the self-employed owner. Getting a mortgage should not be equally as difficult and understanding the lending environment goes a long way towards fostering success. As a mortgage lender who is fluent in self-employed business entity types, and who has access to an independent mortgage banking platform that provides many options to the business owner, I want business owners to know that they should indeed be optimistic when they go to qualify for a home loan. Loan agents like me are out there and we want to help. Let me know if I can be of service today.
Takin’ what they’re givin’,
Robert J. Spinosa
Vice President of Mortgage Lending
Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709
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