First, let’s examine the facts…………………
According to a recent survey by Zillow, self-employed borrowers generally have higher incomes than salaried workers but they have more difficulty qualifying for a mortgage. Judging by the number of people that contact me after being denied a loan elsewhere, I don’t dispute this fact.
Zillow also reported that salaried workers that use their website generally get 10 responses from lenders for every six responses self-employed borrowers receive, adding credibility to the fact that self-employed borrowers get turned down more.
It’s not due to income. The self-employed customers that use Zillow’s website have an average household income of $145,000 compared to $80,000 for the other borrowers. And the median property value for mortgage requests by the self-employed is only slightly higher at $352,000 compared to $315,000 for the other borrowers. Furthermore, Zillow’s analysis also found that self-employed persons have experienced rising household incomes up 28% over the past two years, while salaried borrowers who visit Zillow’s website are up only 17%.
From these statistics you would think that self-employed borrowers with higher incomes are better-qualified than salaried borrowers yet, they are turned down more often.
The short answer is that many loan officers, processors and underwriters just don’t know what they are doing when it comes to self-employed borrowers! It’s much easier to process and underwrite a loan for a salaried, employed worker than it is for a self-employed business owner.
To process and underwrite a self-employed borrower it takes a lot more training, knowledge, and expertise. In most cases minimum of two years personal and business tax returns plus a Year-To-Date Profit & Loss Statement must be analyzed. And, many self-employed borrowers own more than business. There could be Partnerships or partial ownership in multiple businesses too. Tax returns will be required for each entity in which the borrower owns 25% or more. A thorough knowledge of tax return analysis is required to know which sources of income can be used to qualify, whether certain expenses can be added to or deducted from the borrower’s income, etc. And in most cases the income must be averaged over a two-year period.
Next, if the loan officer, processor and underwriter aren’t properly trained and don’t work with self-employed borrowers on a regular basis, they won’t likely have the expertise to properly analyze the income and arrive at the proper figures to qualify the borrower. A self-employed file takes much more work than a salaried workers file.
Another factor is that bigger banks and mortgage lenders tend to centralize their processing and underwriting services in distant locations where their staff has no direct contact with the borrower. Accordingly, there is no personal relationship or rapport established with the borrower.
Much of my business is referred to me after someone has had their application declined elsewhere. And the majority of the time I am able to obtain an approval where others have failed. Being located in a high-priced market where the majority of my applicants are self-employed requires me and my staff to have a thorough knowledge of tax return analysis and lenders underwriting guidelines.
Providing experienced and local customer service is the key to getting the self-employed applicant approved.
It’s exciting to see so many Jumbo products returning to the mortgage market, including even a “Stated Income” loan.
Please call me for more details.
Mortgage Rates This Week: Rates at 19-month lows!
Despite all the talk about the Fed raising the Fed Funds rate soon and interest rates predicted to rise, mortgage rates have fallen in the past few weeks, albeit with more volatility.Market volatility is on the increase and will probably get even more so between now and the end of the year. With stock indexes at record levels and interest rates at record lows, and crude oil in a freefall so far; those markets are ripe for wide swings. The U.S. stock market is about the only place in the world that offers hope for profits, crude oil likely to fall more in an extremely volatile trade that we expect to begin any day now with a huge short-covering move (it is way over-sold), interest rates should remain low and possibly move lower. Like the US stock market, the US debt market is the best place to go for safety and higher rates than other G-7 countries. Mortgage-Backed Securities are part of the US debt market.
Freddie Mac Interest Rate Survey:
This weeks’ Freddie Mac survey announced that the average rate for a 30-year fixed rate loan of $417,000 is 3.93% + .5 points. But, keep in mind that the weekly Freddie Mac Survey is only an average of rate and points offered by surveyed lenders Monday – Wednesday. By the time it is published every Thursday it is old news since mortgage rates change every day. Additionally, lower rates are always available with higher costs and no-cost loans are available with higher rates. And, not everybody is entitled to the same rate. There may be adjustments to anyone’s rate for certain factors such as credit scores, equity, loan amount, length of the lock-in period and many others.
To see what factors are influencing the daily activity of the mortgage market, click on the following link:
Commercial Property Loans | Beach Cities Commercial
We now lend on Commercial Property! I have teamed up with long-time commercial mortgage originator Jeff Redeker to form a new company specifically to finance commercial property. We can finance Multi-Family, Mixed Use, & Office Buildings in addition to handling SBA loans.
Give me a call for any type of Residential or Commercial property loan! And Visit us at BeachCitiesComercial.com