By: Michael Ogg, RMLO and Owner of Rock Mortgage Services, LP
Applying for a self-employed mortgage can be a complicated process, and not all loan officers are equipped to provide them. Mike Ogg, owner of Rock Mortgage Services, LP, explains how to prepare for the application process.
For a lot of people owning a business is a dream, and the benefits are countless. You get to control your own destiny, make our own hours, and all of your labor and effort directly benefit you and your family.
I know personally it’s not always sunshine and roses however. Business ownership can feel like the weight of the world is on your shoulders at times, and there’s nothing more humbling than having other people depending on you for their paycheck.
You can’t just call in sick, and when you do you always know when you’re lying.
I’ve been self-employed for 20 years now, and I can tell you, as both a business owner and a Residential Mortgage Loan Originator, applying for a self-employed mortgage is complicated because the standard underwriting guidelines require the two most recent business and personal tax returns.
Every traditional program we offer calculates self-employed income the same way. For a 2019 example:
(Adjusted Gross Taxable Income 2018 + Adjusted Gross Taxable Income 2017)
= Two-year monthly average
Then, there are processes to account for the expenses a business owner acquires. If your most recent return is less than the previous return, we take a more conservative approach and divide income by 12 months. We can also add back in expenses like business miles, depreciation, depletion and carry over losses. However, these adjustments are seldom enough to qualify for the home you really want. Which is why, we encourage our client’s to plan up to 2 years ahead.
This is where a good loan officer can come in handy. We can look at your current debt load, the estimated payments on the type of home you are looking for, and how much income you’ll need to support that debt load. We’ve done this countless times with our self-employed borrowers, and when they listen, they are all pleasantly surprised.
Relief (Kind of)
In the good old days (1995 to 2008), we had a program called SIVA (stated income verified assets) that allowed business owners to present the last 12- or 24-months bank statements. Mortgage underwriters would look at the deposits and expenses to evaluate the cash flow needed to service the debt. After a few years of unsustainable program adjustments and the 2008 mortgage bubble, SIVA was discontinued while more regulated processes were reestablished.
But now, SIVA is back for business owners who’ve owned their business for at least 2 years, and the guidelines are exactly the same as the original program with a few exceptions. This program comes with a higher rate (typically 1% to 1.50% higher than a conventional mortgage) and requires at least a 10% down payment.
At Rock Mortgage, we have signed up with privately-owned investors who have begun servicing SIVA loans. This is a complicated product that requires special training, but since then, we have begun successfully closing SIVA loans on a monthly basis.
If you are a self-employed business owner planning to buy a home in the next two years, Rock Mortgage can help you to prepare documentation for a smooth and simple process. Call Rock Mortgage today at 832-230-3067 or go to www.rockmtg.com.