Self-Employed Borrowers Need to Be Extra Patient When Applying for a Home Loan

imgresAs a marketing manager, I read all of the customer feedback involved in the mortgage transaction.  One of the most common complaints that we receive is that there was too much paperwork included in the process.  For those who are self-employed, the process requires more paperwork than ever, so it has also become a requirement of self-employed borrowers to be patient.  The Google of Real Estate, Zillow, reported that it is tough to even get lenders to quote you a rate if you are not a salaried employee…Zillow also found that “self-employed online mortgage shoppers got just six loan quotes from lenders for every 10 offered to borrowers who aren’t self-employed” (NBC News, 2014).

It seems unfair, especially since the self-employed typically make more money than those on salary (roughly 81 percent more than the salaried employer according to Zillow), and overall seem to paint a more sound financial picture.  The self-employed are also more likely to put more money down and buy larger homes in comparison to the salaried employees.  The main reason for this is that although higher income and more money town is typical to hold true of the self-employed borrower, there is always the risk of life happening, and they are seen by mortgage lenders as more unstable.  When a self-employed person’s business fails, they cannot simply move on to the next job, they have to take care of business, and declare bankruptcy in the worst case scenario – that worst case scenario is too much risk for lenders, which is why they are extra meticulous on the mortgage loan on a self-employed borrower.  Salaried worked require W-2 forms, pay stubs, and bank statements among other things.  The self-employed require two-three years of tax returns, and a corporate return if the company incorporated.  Sometimes lenders want to see business debts as well.  According to NBC News, “many self-employed workers also have a harder time meeting income guidelines because they take advantage of tax breaks to lower their tax bill”.  This is something that could become dicey when it comes to applying for a mortgage.  On top of all of this, lenders may demand a larger financial cushion in the form of savings or investments for self-employed borrowers in order to offset the variable incomes, and more of a down payment put down (NBC News, 2014).

All of these requirements create a larger barrier of entry for the self-employed borrower, but the seemingly excessive requirements and paperwork do not go without creating more work for the lender as well.  Since the self-employed borrower requires the lender to put in more man-hours as opposed to the salaried employee, it may be why the self-employed borrower is not nearly as heavily targeted.  There is a lot more time and work to be invested with the self-employed borrower.  For the self-employed out who are set on becoming a homeowner, it is imperative to make sure all income is accounted for and can be traced back to the source.

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