Posts Tagged ‘self employed borrower’

More changes due to Covid

April 21, 2020

I know… I know…. we’ve had our fill of Covid related news. I hear you! I know your head is probably spinning trying to keep up. Mine too! To compensate, let’s get straight to the point!

A post from earlier in April detailed changes in the mortgage industry. One of the changes focused on the increased scrutiny of continued employment due to many layoffs/furloughs throughout the country. Since the post, we’ve experienced more changes.

  • Year to Date Profit and Loss statements are often being required for self employed borrowers. This is to show stable income in the time of Covid.
  • Those getting temporary or permanent salary reductions can still qualify for a home loan. So long as we can show the updated income (pay stub reflecting the reduced pay), and the borrower still qualifies for the loan with the reduced pay, then we can proceed as normal.
  • Investment accounts had a mandatory manual reduction of 50% from the statement balance due to the losses in the stock market (if an investment account shows $200,000, then we could only use $100,000 toward the loan). With the rebound in stocks, the manual adjustment is now 30%.

While the entire experience right now can be frustrating, underwriting has shown some flexibility:

  • P&Ls: I had a client closing where half of their income is earned in the 4th quarter. If you took the first quarter earnings and multiplied by 4 to get a yearly total, the pace would be way off! I had my client compile a P&L from the first quarter in 2019 to compare it to year to date 2020 to show income is similar when compared to the same time last year. The loan was approved.
  • Normally when there is a reduction of income/hours, we need to show the reduction has been in place for a period of time (not just one pay period). Well, we have successfully closed clients after one pay period of the reduced pay so long as they still qualify for the loan with the reduced pay.
  • Updates are happening in relatively real time as the investment account requirement updated as market conditions improved.

I feel underwriting is trying to work with us during this tough time while still meeting the agency guidelines. I’ll work with my clients to present the best case for continued stability of income for those who are in the loan process and being impacted by the fallout from Covid.

Thinking of getting a home loan right now? Rates are still low for those looking to refinance… people are still out looking for homes to purchase. The housing market is still very active. Contact me today, and we can talk about how Covid will impact your ability to purchase a home (if any impact at all). If you are looking to get the loan on a property in the state of Georgia, I can gladly help you with the loan!

Jumbo Loan FAQs

June 7, 2016


Now that we’ve talked about having the best of both worlds when it comes to Jumbo rates, let’s discuss some other questions people have about Jumbo loans.

Q: What is a Jumbo loan?
A: Any loan amount over $417,000.

Q: How large can Jumbo loans get?
A: There really isn’t a limit, but our office focuses on loan amounts up to $2,000,000.

Q: How much money do I need for a down payment?
A: You can apply for a Jumbo loan with as little as 10% down. The rate is higher, so ideally you’d want to make at least a 20% down payment.

Q: Are the closing costs higher for Jumbo loans?
A: The short answer is yes. The longer answer is this… while Jumbo loans, VA loans, FHA loans, and Conventional loans have some of the same fees associated with the loan program, some of these fees are based on the loan amount such as title insurance, discount points, and in the state of Georgia, the transfer taxes. For example, one transfer tax is 0.001% of the purchase price. That means on a Jumbo purchase of $1,000,000, the fee is $1,000. If it is a conventional loan purchase of $400,000, then the fee is $400. If an FHA purchase of $225,000, then the fee is $225. So while the fees are essentially the same name, some are just much higher than others due to the purchase price/loan amount differences.

Q: Are Jumbo loans harder to qualify for if you are self-employed?
A: No, they are not. The same basic documentation is needed for the loan application. The main parts of underwriting are to ensure the income is stable for all borrowers. This is just looked at more closely for self-employed borrowers, but not any different than applying for a conventional loan.

Q: Are reserves needed for Jumbo loans?
A: Yes.

Q: Ok then, how much reserves are needed?
A: It depends on the loan program. Some require 6 months on the subject property. Others require 12 months. Some even require 6 months on all properties owned. The key is asking your Loan Officer the specifics of the reserve requirements up front so there are no surprises later in the loan process.

Q: Can the reserves be from retirement or other non-liquid accounts?
A: Yes, retirement and other asset accounts can be used. That said, some Jumbo loan programs limit the amount of reserves that can be used from those accounts. Again, ask your Loan Officer for these details.

Looking to buy a home that will require a Jumbo loan? Buying in the state of Georgia? If yes, I can help you get started. Contact me today and we’ll discuss these questions and more.



Mortgages and Filing Tax Returns

March 22, 2016


It’s tax season, and you are trying to buy a home. Not only must you navigate finding a home, applying for the loan, and filing your taxes, you may not realize that the tax filing could impact qualifying for a mortgage.

Well, it can impact qualifying for that home mortgage, and how much it impacts depends on how one is paid.

I’ve talked in the past on this site about how it is just as important how someone is paid instead of just how much someone makes. After April 15th, how someone is paid also impacts the documentation required for the annual income tax filings:

  • W2 salary: will need proof of the filing of the tax returns. If an extension is filed, proof of the filed extension. If money is owed on the tax extension, proof the amount owed is paid. The lender will want the transcripts from the IRS, but will typically waive that requirement and get transcripts from the previous two years instead knowing they can request the current year’s transcripts down the road (more on this in a moment). So long as the current year’s tax return copies aren’t showing any income that must be verified through transcripts (such as rental property income, part time business loss/profit), a W2 salaried employee can move forward with only a few hoops to jump through.
  • Everyone Else: This large category would include the self-employed, 1099 employees, and W2 employees that earn more than 25% of their income through commission and bonuses. In this category, not only does underwriting still need proof of filing/proof of extension (and proof of payment if taxes owed on an extension), but now tax transcripts must be made available. While an e-file means the IRS accepts the return instantly, the time between filing, accepting, processing the return, and making a tax transcript available can take several weeks. This timing definitely comes into play when scheduling a closing time on your new home purchase.

Now one thing you may be thinking to get around the transcripts is to file an extension. That works until October 15th! That said, the strategy won’t work if income is needed from the current tax year. It also may still require a P&L from the current tax year for some borrowers.

Planning on buying a home this Spring? Want to make sure there isn’t an unexpected delay on closing due to needing a tax transcript? Contact me today. We’ll make sure the timing is all planned out so we won’t be sitting around waiting for a transcript to become available.


Home Buying Preparations – Income

January 5, 2016


Welcome 2016! This time of year, people are busy making new year’s resolutions. Popular resolutions are losing weight, eating healthier, saving money, quit smoking, travel, spend more time with family… all of these have one thing in common. If you don’t have a plan, you won’t succeed. For example, no one would make the goal of exercising more on January 1st, and then run a marathon on January 2nd!

Buying a home involves a very similar process. You don’t just find a house and make an offer on it. You need a plan. You need to make sure your financial “house” is in order. Otherwise, you could be wasting time and risking your hard earned Earnest Money. Over the next few weeks, this blog will focus on three main aspects of preparing to buy a home through the prequalification process. Those aspects include income, credit, and assets for the down payment.

This week, we’ll focus on income by linking a few posts my colleague, Rodney Shaffer, wrote toward the end of 2015 in terms of qualifying to buy a home and income. These posts are not all inclusive as income from employment, bonuses, commission, self employed, 1099, child support, alimony, retirement, annuities, trust, disability, social security, tips, part time, asset-based income can be used when buying a home. Covering all of those at once would be an EPIC post, so we’ll stick with some common ones.

Overview – So How Much Money Do You Make

Salary or Hourly – Q: How to you earn? A: Hourly vs Salary

Commission* – Q: How do you earn? A: Commission income

*Note self employed and bonus income documentation is similar to commission with one exception. Self Employed borrowers can get by with only one year of tax returns instead of the two years required of commission and bonus income.

For non-traditional forms of income, such as child support, alimony, retirement, annuities, trust, disability, social security, the main qualifying aspect of these is stability. Currently, income “stability” for these types is considered to be any income stream lasting for 3 years after the closing date. Each one I just mentioned may have one small detail different from another, but the BIG unifying theme in all of these is the three-year continuance.

Don’t see your “type” of income listed? Have questions that aren’t answered? You are in luck. Contact me today, and we can discuss. If you are buying in the state of Georgia, I can help you get prequalified and ready to buy your new home.


How to keep your loan approved – Income

August 4, 2015


Yes, you can actually get your loan approved… and then do something to cause your loan closing to be delayed or maybe even unapproved altogether. This can be done with actions involving income, assets, and credit. In other words, every part of the loan process.

Over the next few posts, we’ll take a look at some things to avoid in each category. Today, we’ll start with income.

There is one thing to remember in this series. The examples being provided are ways the loan can be delayed or denied AFTER receiving loan approval.

Some of these may seem obvious, but they are worth mentioning.

  • Don’t quit a job: I know this one sounds really silly, but apparently it has happened enough that we must re-verify you are still employed on the day of closing. If you use income from your job to qualify for the loan, you probably don’t need to quit until after you own the home!
  • Don’t change jobs: Again, seems silly, but you would be surprised. If a great job opportunity comes up during the loan process, let your mortgage loan officer know. Together, we can work out the details of the change. What we want to avoid is becoming aware of this on the day of closing, and potentially cause a delay/denial of the loan.
  • Don’t change from a W2 salary position to another form of compensation: If someone moves from a W2 salary to full commission, we have lost that income for qualifying purposes. Borrowers who earn income through commission, bonuses, 1099 or are self employed require tax return(s) to verify income. If the switch is recent, that means there is no tax return history to verify the new income. That would mean we can’t use the income anymore, and may cause the loan to be denied.

Got a job transition coming up, and you are looking to buy in the state of Georgia? Contact me today. We can work through the job transition to ensure your closing isn’t delayed. The last thing we want is to make a silly mistake and cause problems putting you into your new home.

Let's not upset Mr. T!

Let’s not upset Mr. T!


Is Freddie better than Fannie?

August 13, 2014


Both Freddie Mac and Fannie Mae offer conventional loan products, but is one better than the other? In most ways, the loan products are similar. It’s like choosing the difference between chocolate cake and yellow cake… either way, you are still eating cake!

Even so, what if a specific situation made the decision for you? For instance, if you are allergic to chocolate, you probably don’t need to eat chocolate cake. There are certain situations that make Freddie Mac loans more appearing than Fannie Mae loans. Here are three of them.

  • Self-Employed Borrowers: Freddie Mac loans almost always only require one year of tax returns. Self employed borrowers can have a harder time qualifying for a conventional loan when two years of tax returns are needed… what if they had a down year two years ago?… what about declining income from last year to the current year? Either of those can cause problems. Both are eliminated when using a Freddie Mac conventional loan product since, in most cases, only one year of self employed income on the tax returns is required.
  • Income Exception: Let’s say my client just got a promotion, but the new income doesn’t begin for 60 days and the closing date on the new home is within 30 days. That will not be a problem using a Freddie Mac loan. As long as there is a 720+ credit score, the increased income begins within 90 days of closing, and the client has enough reserves to make mortgage payments until the new income begins, I can get someone approved for a loan using their increased income.
  • Non Occupant Co-Borrower: For the longest time, conventional loans would not allow non-occupant-co-borrowers* to co-sign on a loan. Freddie Mac will allow someone who is not going to live in the home co-sign onto someone else’s mortgage. I would be able to use the co-signer’s income and assets when qualifying the person who will live in the home as their primary residence. Whether or not this is a good idea to co-sign is a conversation the co-signer should have with the loan officer and their financial adviser. That said, if they are willing to co-sign, we can make it happen!

Fannie Mae and Freddie Mac loans offer similar loan products at similar interest rates. There really isn’t much difference between the two. That said, there are certain scenarios that make Freddie Mac loans better for the loan applicant. This is why you need to work with a mortgage lender who will ask the detailed questions that might lead to one of these scenarios. I can’t tell you how many times I have spoken with someone who started the conversation saying “I can’t qualify for a loan,” but they actually could qualify. You never know until you ask, so at least ask the question.

If you are buying a home in the state of Georgia, I can help you get started. Contact me today and we’ll get the prequalification process underway.

* a non-occupant-co-borrower is someone who will co-signing on a mortgage for someone else, but they will not live in the property being purchased.