Q: Are there specialists that provide mortgage services for self-employed professionals? My long-time personal bank seems lost when it comes to analyzing my ability to repay a mortgage. I would like to work with a bank or mortgage company that specializes in self-employed professionals (I am an attorney). Any advice?
A: The key to your question may not be that you are self-employed, but rather, how long you have been employed and the amount of a loan you want to obtain.
Yes, being self-employed means the way you report some of the associated costs you incur on the business side of your income tax return hinders the cookie cutter approach many lenders now employ in reviewing and approving loan applications.
There are mortgage brokers that have cracked the code and work with a greater proportion of self-employed people. You should ask other attorneys in your area for a referral to mortgage brokers they have used and interview them to determine if they have what it takes to work with you. A real estate attorney may have specific recommendations for lenders in your area who have worked with his or her self-employed clients.
Years ago, your long-time bank may have had an easy time financing and refinancing your home loans, but as the housing market declined and lending guidelines tightened, your bank clearly no longer has the desire or ability to work with you or with your requirements.
Having said that, your lender may have the desire to give you a loan but may no longer have the ability to sell that loan to the secondary market. A good mortgage broker should be able to spot issues on your application early in the process and give you a heads-up on potential red flags for your application.
Some of these red flags could involve your taxable income, which is the number lenders use to qualify you for a loan: You might have certain business costs that for federal income tax reasons reduce your taxable income, throwing your mortgage debt-to-income ratios out of whack; you may have contributions to retirement plans that reduce your taxable income; your income may fluctuate depending on the type of law you practice and how your cases get settled. Furthermore, your income may vary greatly from one year to another and you may not have a consistent stream of income to show the bank.
It could also be a communication issue. Your bank can’t tell you where the problem is, but its electronic underwriting system just tosses out your application.
While your overall financial picture may be great and you may even have a high credit score, you don’t fall squarely into the kind of borrower most lenders are looking for. That borrower has been employed for several years at the same job, receives a regular paycheck, has a simple tax return and a good credit score.
In addition, you’ll have greater difficulty in your loan application if you’re trying to refinance your loan and your loan balance is greater than 80 percent of the value of the home. Lenders have greater flexibility in obtaining waivers on certain loan requirements the lower the loan value is compared to the value of the home.
Finally, if you work with a mortgage broker or lender that has worked extensively with people in your situation, those lenders can frequently review the file and have a greater ability to assist you in obtaining a loan for your needs.