Over my entire career in the mortgage field, self-employed borrowers always stand out as the more challenging opportunities. The self-employed borrower often finds themselves in a tug of war between their accountant’s guidance and the demands of the mortgage underwriter as it relates to qualifying income for a mortgage loan. The accountant presses the deductions and works to minimize your taxable income with fancy terms such as “accrual basis” and the loan underwriter often demands pretty much the opposite. At the end of the day, the self-employed borrower cannot provide the tax returns or documentation to support the income and, therefore, cannot qualify for a mortgage. It’s frustrating but we all know this to be true.
To top things off the Federal ATR Rule or otherwise referred to as ‘the ability to repay rule” doesn’t make things any easier. I would like to share a recent success story from one of my clients that was just about to give up on buying a new home before he came to me.
The scenario was the same old story. This gentleman had a primary business and what I would call another small business or side hustle, as is common today. He had a terrific accountant and he had been self-employed for over twenty years. He also had high credit scores and a perfect record of payments. The problem was that he virtually had no qualifying income. At the end of the day it really doesn’t matter how good your credit is or how much money you can put down. If you do not meet the parameters of the ATR rule, you are not getting a loan anywhere.
We solved this gentleman’s dilemma but taking an old fashion route. For years, famous stock maven such as Graham & Dodd have touted cash flow over earnings as a real gauge of a company’s success and stability. In essence, we did the same thing here. Instead of providing taxes returns and standard income documentation we side stepped that requirement and replaced it with a cash flow analysis. We looked at his two businesses over the past two years through the lens of his bank statements meticulously going through each statement and isolating the business cash flow. Then, we itemized and determined what his actual real expenses were to run the business. When we reconciled the two together all of the sudden we had real income and we had a very well qualified borrower that was now eligible for a loan to buy a new home. Real income was in the equation but sometimes it requires a bit more effort to find it. We now have a very happy homeowner and cash was once again proven to be king.
To learn more about our self-employed mortgage loan program requirements see our Self-Employed Loan page or call 703 319-2198 to speak to a representative. Licensed in Virginia, Maryland, DC, and Pennsylvania. We offer both QM and Non QM Loans in this category.
George H. Omilan
President-CEO - NMLS# 873983
Jefferson Mortgage Group LLC
Mortgage Specialists - Virginia, Maryland, DC & Pennsylvania
Other Programs: Alt-A Investor loans-80% Full doc & 75% No Income-No Employment, FHA & VA with Lower Score Options, Fixed & Variable Jumbos-Traditional & Private Label Reverse, Self-Employed Bank Statement & Asset Dissipation Programs. Full range of Non QM Loans for expanded qualification.