Tag: self-employed

How to Rock Getting a Mortgage If You’re Self-Employed!!!

~ Rob Spinosa ~ Leave a comment

Seriously!  Is there anybody who still thinks the self-employed have it easy? You know, like the song says, “they see you havin’ fun just a-lyin’ in the sun?”  Those of us who are self-employed or work with the self-employed know otherwise, and you could argue that owners of businesses, large and small, spend as much or more of their time taking care of business than those getting a paycheck from someone else.  None of this ‘work from home in my pajamas’ stuff for the majority — that’s for sure.

So why does the mortgage industry make it so tough on the self-employed? Some of the reasons can certainly be viewed as valid but others rea just legacy guidelines that really don’t make much sense anymore, but in the this short video we’ll cover:

  1. Who do lenders consider to be self-employed?
  2. What types of business entities apply to the self-employed?
  3. What documentation do the self-employed need when they apply for a loan?

While we can’t spare the business owner some additional work to get a great home loan, we can help them understand and prepare for what the mortgage industry will throw at them.  So, let’s learn how to rock getting a mortgage if you’re self-employed!

Workin’ overtime!

Rob Spinosa
SVP of Mortgage Lending

Guaranteed Rate
NMLS: 22343 
Cell/Text: 415-367-5959 
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960 

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

How to Rock Cannabis Income on a Mortgage Application

~ Rob Spinosa ~ Leave a comment

Fifty years ago, when the Doobie Brothers were flying high and the folks in China Grove were rising for another day, it would have been hard to imagine that marijuana would eventually be legal in some states.  But, not legal in all states and not legal at the Federal level and that means those who work in the marijuana and cannabis industries can see their mortgage opportunities go up in smoke if not aligned with a lender who knows which programs and investors can navigate this relatively new industry.

So let’s take it to the streets and find out just how a homebuyer or homeowner can get a mortgage approval if they are employed in a cannabis business and get income from a business in the cannabis space.

Need some solid advice about mortgages and marijuana and cannabis income?  Give me a like or subscribe on YouTube!

Listen to the music,

Rob Spinosa
SVP of Mortgage Lending

Guaranteed Rate
NMLS: 22343 
Cell/Text: 415-367-5959 
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

The Yin and Yang of Mortgages for Business Owners

~ Rob Spinosa ~ Leave a comment

It is no secret that the self-employed have their share of challenges when it comes to getting a home loan. And why wouldn’t they? On one hand, their tax professionals spend hours maximizing their deductions and helping them “write off” every allowable expense and on the other hand, their mortgage loan advisor tells them they have to show more income in order to qualify.

But can these seemingly opposite or contrary objectives actually be complementary, interconnected and interdependent and come together to allow a business owner to get a great mortgage?  Is there a yin and yang relationship somewhere in this puzzle?

Indeed, there may be a solution for some of these borrowers. On both the purchase and refinance side, we have a jumbo mortgage program that allows the self-employed to qualify with bank statements instead of tax return income. We’ll look at 12 months of business and personal bank statements but we won’t request pay stubs, W-2 forms or personal or business tax returns. Here are the key points:

Who is Eligible for a Bank Statement Mortgage?

This program is a match for the self-employed business owner with two-year history of operating the sole proprietorship, LLC, S-Corp or C-Corp. We prefer to see 100% ownership of the business but we can make some exceptions to this guideline. We do not allow any major derogatory events (bankruptcy, foreclosure, short sale, etc.) within the last five years. Realtors, independent contractors and other professionals who receive a 1099 are also ideal candidates for this bank statement loan.

How Does a Bank Statement Mortgage Work?

We’re next going to look at 12 months’ worth of business bank statements and we’re going to get a sense of the business deposits over that period of time. We’ll apply a 50% expense ratio to derive our qualifying income. So, for example, if the business shows $40K of monthly deposits on average, our business owner and borrower now has $20K per month of qualifying income. Simple as that, except we exclude any windfall deposits, transfers to and from accounts or anything other than legitimate business deposits.

What Else Do I Need to Know?

We will permit all occupancy types (primary, vacation and rentals) and we’ll allow loan-to-values (LTV) up to 75%. Interest-only payment options exist and our maximum debt-to-income (DTI) ratio is 47%, because this is a non-QM program. Simply, you have more flexibility under these guidelines than under the stricter qualifying parameters of a qualified mortgage (QM). Best of all, and worth repeating, we will not request your tax returns and we don’t need to see a profit and loss (P&L) statement for the business — the bank statements are our path to inner peace and harmony.

Bank statement qualification mortgages can open the door for the hard working business owner who has heretofore had little luck getting a hefty mortgage payment to fit into his skinny tax returns. If you’d like to know more about this program today, get your ticket at the station, get in touch and I’ll be happy to help.

Confucius say, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Can You Still Get a Stated Income Mortgage?

~ Rob Spinosa ~ Leave a comment

Believe it or not, the calls come in. “Do you guys still do stated income loans?” Still? Seriously, a lot has changed in ten years, but in the home lending building perhaps there has not been a more pronounced departure than the Elvis of all mortgages, the stated income loan.

Basically, these creatures roamed the earth and skies during the pre-real-estate-downturn era and allowed a borrower to state what he made in income per month. To state the amount of money he had available for a down payment. And even to state what he did for a living. All of this changed with the Dodd-Frank Wall Street Financial Reform Act (Dodd-Frank), and without getting technical, the core provision in this law is “ability to repay,” or ATR. Today, if lenders don’t prove that a borrower can repay the loan they are making, then a lot of bad things can happen to the lender. And if bad things can happen to a lender, then you know that’s gonna flow downhill to the person looking to purchase or refinance — namely, you, the borrower.

So, no. Stated income loans don’t still exist.  At least not in the traditional sense. But in the new world, lenders do have some very viable and attractive ways to determine ATR by alternative measures and I’ve outlined the three most common below. These programs address the reality of the borrowing public, especially the self-employed, who often file their tax returns in a manner that reduces income and maximizes expenses — for good reason and within the letter of the IRS law. To prevent these otherwise creditworthy borrowers from being shut out, today’s substitutes for stated income loans might involve some or all of the following characteristics:

Asset Depletion

An asset depletion loan allows a buyer or borrower to leverage his/her cash equivalents, investments and sometimes even retirement accounts to derive a hypothetical income stream that can be used for qualifying. These assets do not need to be moved or liquidated, just documented. For those who have sufficient net worth but insufficient traditional qualifying income, an asset depletion loan (also known as asset-backed, asset utilization, asset amortization, etc.) can prove an ideal solution.

Bank Statement Qualification

Business owners who show strong income into their business may want to consider a bank statement loan as an alternative to a stated income loan. For a bank statement qualification, we will typically examine 12 months of business bank statements. We’ll total all of the legitimate business deposits and we’ll apply an expense ratio to that sum. The resulting figure is the qualifying income. For those who “write off” a lot of business income on tax returns, a bank statement loan may circumvent that age-old challenge, because for these programs, no tax returns are required.

Debt Service Coverage Ratio (DSCR)

For the real estate investor who will struggle with a conventional mortgage qualification, we now have the debt service coverage ratio, or DSCR, home loan option. This program looks at the property’s income and nets out the housing payment on it. As long as the ratio is positive (and all other qualifying criteria are met), we have a deal.

While the sun may have set on the Wild West days of stated income, the home lending industry has come a long way back to offering attractive alternatives to the alternative borrower. Not all loan professionals have access to these options and fewer of those are fluent in the approval parameters. If you need help with a bank statement loan, an asset qualifying mortgage or a DSCR program, get in touch at any time. We are experts in these and look forward to being of service.

In a new loan state of mind, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Having Your OREO and Depleting It Too

~ Rob Spinosa ~ Leave a comment

Asset-backed or asset qualifying mortgages are not endangered species around here. Not a week goes by where we don’t field an inquiry from a home buyer or homeowner seeking a mortgage but devoid of the typical income qualifying requirements; paystubs, W-2 forms and tax returns that show what they really earn in any year. So using assets to qualify for a mortgage has become a viable alternative for those who have strong credit and who have demonstrated the ability to save and invest. These individuals can often parlay their (liquid) net worth into qualifying power, and maybe the best part is that they do not need to sell or otherwise touch those assets.  Asset depletion, asset utilization, asset amortization or asset-backed loans — whatever you want to call them — are, indisputably, no longer mortgages relegated to the high-rate outer fringe of the lending industry.

But up until this time, one of the major hindrances to qualifying for an asset-backed loan is that we have not permitted borrowers to use the equity in other real estate owned (OREO) as a way to qualify. Yes, we count cash-equivalents, stocks, bonds, mutual and exchange-traded funds and even retirement accounts in some cases. But equity in other real estate? It was a non-starter. You could literally have millions of dollars worth of property in your portfolio but we would not consider it, except on the liability side of the equation. That’s changed with our new asset qualifying program and here are the key things to know.

Asset Utilization

Utilization of financial assets will be considered as borrower income to help qualify for their monthly payments. The assets themselves do not need to be liquidated, moved, pledged or otherwise. We can also use asset depletion to supplement other sources of income, including employment-based income, Social Security and the like. The key thing to know with this program is that after the down payment and closing costs have been made (in the case of a purchase) the borrower must have $450,000 in ‘net’ assets, and this is further governed by the requirement to have the lesser of $1MM or 1.25 times the loan amount in ‘qualified assets.’ Let’s examine each category and then give an example of a purchase scenario.

Net Assets

On our asset-backed mortgage here, your “net assets” are those that remain in your accounts after you’ve closed the transaction. Further, whatever that number will be, we’ll apply a qualifying percentage to those balances. Non-retirement investments are counted at 85% of their total value, retirement accounts at 80% and other real estate owned (OREO) at 75% of its equity position, determined by an exterior appraisal or broker price opinion (BPO). Remember, post-close, we need to have no less than $450K remaining via all sources.

Qualifying Assets

In order to drive asset-based income, we use our net asset total above, but must assure that it first meets or exceeds 125% of the loan amount or $1MM, total, whichever is less. We will then take the net asset total and apply a utilization draw schedule of 120 months. The resulting figure can be used to create or supplement qualifying income.

Digging In

Let’s use the test case below to demonstrate the power of this program:

  • Purchase price: $500,000
  • Down payment: $100,000
  • Loan amount: $400,000
  • Estimated closing costs: $10,000

Qualifying assets:

  • $25,000 in checking/savings (utilized at 100% for a total of $25,000)
  • $100,000 in a money market fund (utilized at 100% for a total of $100,000)
  • $120,000 in stocks/bonds/mutual funds (utilized at 85% for a total of $102,000)
  • $200,000 in retirement accounts (utilized at 80% for a total of $160,000)
  • $600,000 in equity in OREO (utilized at 75% for a total of $450,000)

Net assets: $837,000 (qualifying assets) – $110,000 (transaction requirements) = $727,000

In this case, $727K is greater than 1.25 times the loan amount ($500,000) and greater than $450K in post close, so we can deplete the amount. If we divide $727K by 120 months, we derive $6058 in monthly qualifying income. This can be added to any other income the borrower documents, or it can be used on its own, if sufficient to make debt-to-income ratio requirements.

Icing on the Cake

Asset-utilization mortgages have been in existence for a bit of time now and are gaining popularity each month. But our use of OREO is unique and a force multiplier for these types of qualifications. If you own real estate that has a lot of equity in it, and you need an alternative qualification method, perhaps because you’re self-employed or have variable income, give us a call and let’s review your profile in this new light. The results might be sweet.

Oh, oh, Oreo, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Jumbo Mortgage for the Self-Employed

~ Rob Spinosa ~ Leave a comment

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.

Choose Your Lender Wisely

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
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960
Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283