Working with Self Employed Buyers!Daniel Dobbs2023-05-25T12:06:23-07:00
Working with self-employed (i.e “SE”) buyers is both a niche and a challenge; but if you can build a business model which masters the art of working with the “entrepreneur class” the monetary rewards and referrals will be ongoing.
The biggest challenge: Many lenders have created a myriad of conflicting and subjective underwriting guidelines, it’s difficult for SE buyers to qualify.
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For Example: Restrictions on using funds from a business account, additional “reserves” and different views of which tax deductions are “paper losses” (vs. which are real losses) can initially confuse even the most experienced loan officer.
So despite your buyer’s enthusiasm to begin looking for homes, insist they go through “all the qualifying hoops” prior to you investing time and gas money.
In addition to lending issues, many personal issues (usually undisclosed) can arise preventing COE, leaving the agent confused & discouraged about their own efforts.
For Example:
· Many entrepreneurs have multiple business interests (both past and current) and are many times are “incomplete” when it comes to disclosing the whole truth and nothing; which many times create a crisis right before COE.
· S.E. Buyers may flash a lot of cash and talk a good game but the appearance of affluence may just be startup capital or cash flow from their business when in fact they have no verifiable business history.
· Tax returns: We’ve all heard from buyers “I make a lot of money” BUT “I don’t show it on my tax returns” and then they go a song & dance why it’s “outrageous they don’t qualify”.
The bottom line: No taxable income equals no home loan!
· For small business owners “working capital” is the key to expansion and success.
Buyers may decide (after all of your efforts) they can’t / won’t liquidate their business capital to buy a home.
· Their business may take a brief downturn causing them to put “plans on hold”.
· Many SE buyers think “hard money” is an option but upon learning the typical rate and terms for they go into “payment shock” and cancel their plans.
· During the home buying process, a past year’s tax audit (state or federal) suddenly comes into play or a tax lien pops up on the credit report, lowering the buyer’s FICO scores and forcing the buyer to work out a “repayment plan”.
Lower Ficos mean higher rates, lower acceptable debt to income (DTI) ratios and possibly a higher down payment.
· If a tax repayment plan is necessary, buyers must have a 3 month (min) payment history (“seasoning”) which delays (or kills) COE.
· Otherwise the lien must be “paid in full” further draining the buyer’s cash.
The Best Strategy
For escrow to close with these buyers, prepare them to close in 30 days (or less); so none of these issues have a chance to rear their ugly heads.
Then once they find a home, it’s full steam ahead!
Whether a buyer wants to use FHA-VA- or Fannie/Freddie financing, have your loan officer get your buyer’s loan application fully DU Approved”
“DU” is a generic term for an automated computer loan process and virtually guarantees your buyer successful COE and your commission check!
Broker
Mutual Home Mortgage
500 S. Kraemer #165
Brea, Ca. 92821
Cell: 949 250-3981
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