by Paige Nickel
Matching the right loan type to the applicant can be challenging on the best of days. If you are working with someone who is self employed, finding a mortgage might make your day a bit harder, but the payoff may make up for the extra effort.
For some, getting a mortgage the way they want can be difficult. For self-employed individuals the task can be even harder. With the extra paperwork and documentation, it’s no wonder that according to a recent report from Zillow, self-employed online mortgage shoppers received just six mortgage loan quotes for every ten quotes given to those who were regular employees.
Self-employed individuals as a group tend to have lower credit scores when compared to salaried workers. Loan officers should also consider that people who are self employed tend to have a mishmash of personal and business expenses that may appear to decrease their true earning potential. Dealing with this issue may mean reaching farther into an applicant’s personal life than normal to gather data usually considered personal info. Loan officers should be aware of these issues and be clear and open about why more information than just the surface numbers is needed.
But there’s good news too. In contrast to the credit scores, self-employed people usually have a higher income when compared to salaried employees. Also, they typically have higher and more readily available savings for down payments.
New regulations may lower the bar
Mortgage lenders Fannie Mae and Freddie Mac are in the process of making big changes (e.g. the 3% down payment mortgage is baaack) with hopes of improving the housing market and helping more Americans become homeowners. The new lending guidelines that went into effect will aid in easing credit requirements. “Credit availability is still a challenge and it is particularly challenging for self-employed borrowers,” said Zillow vice president Erin Lantz. “So, despite self-employed borrowers with high incomes appearing on paper to be better situated to repay the loan, they’re often overlooked by lenders” (Are YOU passing up these potential clients?)
The new guideline initiation is now in full swing and can be seen as a positive change that will broaden the range of accepted borrowers. According to the Urban Institute, it is estimated that approximately 1.2 million additional home loans would be given annually if mortgage availability went to normal levels.
Though applications from self-employed applicants currently require more paper chasing, the benefits to those LOs with the desire to push through can be well worth the effort. A long-tail approach to their application process is often key to success. Early consultation with potential applicants to assess their current situation has been very beneficial for those LOs specializing in self-employed applicants and early guidance before face-to-face meetings goes a long way in building the right foundation. When the potential clients get clear direction and an inventory list, the process can work as well as any other application. You may find extra potential clients among the self employed, giving you extra leads and more closings.
Are you working with self-employed mortgage applicants? Tell us why you do, or tell us why you don’t?