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Self Employed Mortgage Approval

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I am finally ready to buy again after never wanting to own real estate again again losing everything years ago.  I have rebuilt my credit and all monitoring services I use show me scores between 710 and 730. Mortgage company pulls and it shows mid 600's WTF. Everything is paid on time, credit usage is less then 30.  I get they use a different process but it clearly looks like they try to screw you our of the gate so they can charge higher interest.  I would love anyone's input who is self employed on this? Thanks

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where did you get the 710 and 730 scores?

 

there are mortgage specific FICO scores that may differ from FICO scores used by credit card issuers, etc.

 

30% utilization is high. what reasons were given for why your scores are only in the 600s?

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 I have approval $550,000 purchase price 10% down but the rate is up to 8% if I put another 5% down they say it will drop 3 points.  Thoughts on are there better mortgage companies?

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On 4/8/2019 at 5:20 PM, hegemony said:

where did you get the 710 and 730 scores?

 

there are mortgage specific FICO scores that may differ from FICO scores used by credit card issuers, etc.

 

30% utilization is high. what reasons were given for why your scores are only in the 600s?

This^^^

 

Also, IIRC, mortgage FICO's are very sensitive to 'number of accounts with balances'.

 

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Hey nolimits,

 

I'm a loan officer, and based on the rate you posted that you've been quoted, it sounds like the lender that provided it to you is qualifying you through a portfolio loan product, rather than a Conventional product (Fannie Mae or Freddie Mac) or an FHA product.

 

I'm not sure why, but since you mentioned that you are self-employed, I am assuming that your debt-to-income ratio won't qualify for a Conventional product, which is common with SE borrowers, as they take the IRS deductions that they're eligible for.

 

I'd suggest you ask exactly what kind of loan program you are being quoted on -- is it an agency product or a portfolio product? I'm in a BNI group, and all of my group members are self-employed. They all take as many deductions as possible (who doesn't?!), but unfortunately, the end result is that their net income on their tax returns is too low to qualify for a Conventional loan. 

 

The solution I provide them is to offer them a "Portfolio" loan product, called a "Bank Statement Mortgage". With a Bank Statement Mortgage, the loan is manually underwritten, rather than electronically underwritten, which Fannie, Freddie and FHA loans are. The manually underwritten Bank Statement Loan doesn't require any tax returns, but rather the last 12 months of your business bank statements. The way income is calculated, the underwriter identifies all of the deposits on the bank statements that are related to the business. They use a 12 month average of the business deposits only, multiple that number by 50%, and that figure is used for your monthly income.

 

For example, let's say you have gross deposits of $22,000/month that are reflected on your bank statements. The $22,000 figure is multiplied by 50%, which is $11,000, and that is the amount used for your monthly income. 

 

Similar to a Conventional loan, you can go up to a debt-to-income ratio of approx. 43%, so in the example above, the maximum amount of your total mortgage payment, as well as any monthly liabilities that appear on your credit report, would have to be at or below $4,730/month.

 

Based on today's interest rates, the rate is between 5.990% and 6.250%, with a 10% down payment and a minimum credit score of 600.

 

Definitely ask your lender some "probing" questions, and use some industry jargon, just to let them know that you know what you're talking about.

 

-Pat

Edited by seanote

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21 hours ago, seanote said:

Hey nolimits,

 

I'm a loan officer, and based on the rate you posted that you've been quoted, it sounds like the lender that provided it to you is qualifying you through a portfolio loan product, rather than a Conventional product (Fannie Mae or Freddie Mac) or an FHA product.

 

I'm not sure why, but since you mentioned that you are self-employed, I am assuming that your debt-to-income ratio won't qualify for a Conventional product, which is common with SE borrowers, as they take the IRS deductions that they're eligible for.

 

I'd suggest you ask exactly what kind of loan program you are being quoted on -- is it an agency product or a portfolio product? I'm in a BNI group, and all of my group members are self-employed. They all take as many deductions as possible (who doesn't?!), but unfortunately, the end result is that their net income on their tax returns is too low to qualify for a Conventional loan. 

 

The solution I provide them is to offer them a "Portfolio" loan product, called a "Bank Statement Mortgage". With a Bank Statement Mortgage, the loan is manually underwritten, rather than electronically underwritten, which Fannie, Freddie and FHA loans are. The manually underwritten Bank Statement Loan doesn't require any tax returns, but rather the last 12 months of your business bank statements. The way income is calculated, the underwriter identifies all of the deposits on the bank statements that are related to the business. They use a 12 month average of the business deposits only, multiple that number by 50%, and that figure is used for your monthly income.

 

For example, let's say you have gross deposits of $22,000/month that are reflected on your bank statements. The $22,000 figure is multiplied by 50%, which is $11,000, and that is the amount used for your monthly income. 

 

Similar to a Conventional loan, you can go up to a debt-to-income ratio of approx. 43%, so in the example above, the maximum amount of your total mortgage payment, as well as any monthly liabilities that appear on your credit report, would have to be at or below $4,730/month.

 

Based on today's interest rates, the rate is between 5.990% and 6.250%, with a 10% down payment and a minimum credit score of 600.

 

Definitely ask your lender some "probing" questions, and use some industry jargon, just to let them know that you know what you're talking about.

 

-Pat

As some one that is self employed I don't understand deducting into low income. Either you take appropriate business deductions from your business revenue. Which are business expenses that come off gross income. What you are left with is personal income.

 

The way I see it if you are deducting personal stuff from business income or over exaggerating business expenses, you are cheating on your taxes. If you are deducting legitimate business expenses from business income and come up a low personal income then you are just not making as much money as you think you are. Gross income does not equal profit.

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