This series of articles will teach you enough about what underwriters do with self-employed borrowers so that you can prepare for loan approval.
If a bank declines a loan, very few will tell you exactly why you don’t qualify; much less what you can do to overcome the problems. They usually simply say “your DTI is too high”.
These articles will help you prepare for the often-frustrating world of residential mortgages. As a mortgage professional for almost two decades, I am sharing with you the tips I give to my self-employed clients when they are preparing for loan approval. I hope this helps you.
Self-employed people have much greater challenges when they apply for a home loan than salaried and hourly employees who report only W-2 income. If you are a W-2 employee working for someone else, it’s very easy for the loan officer at your local bank or the mortgage broker to do simple math and determine whether you qualify for the loan you want.
If you are self-employed, it is highly likely that that the loan officer will not know the intricacies of the math that the underwriters use to qualify borrowers. Most self-employed people know their gross income and adjusted gross income, but there is no way to know the income calculation the underwriter must use to meet guidelines without being taught. It is not intuitive.
When you are pre-approved by a bank, they rarely do the full income analysis the underwriter will do when the loan is submitted. Very few lenders will fully underwrite a loan before you are in escrow, because underwriters are expensive; and many lenders don’t want to waste their underwriters’ time with someone who may go to another lender.
This is a problem particularly if you are self-employed and buying a home. You and your loan officer may believe you earn enough income to qualify for the loan. If you get into escrow before an underwriter, knowledgeable loan officer or processor does the “lender math” on your tax returns, then you may find out a couple of weeks into your escrow that you don’t qualify. At that point, you have likely paid for an appraisal and inspection, and are possibly selling your current home.
Let’s prevent that from happening.
This series of articles and the calculators offered on this website will give you simple tips and solutions to the issues faced by self-employed people; and help you and your tax professional determine if the income reported will help you buy the home you want. Another series of articles helps people who are divorced or planning a divorce.
If you have questions or want help assessing your situation, you can contact me at 877-728-2008; CustomerCare@HollyGustlin.com