“It’s bad for some Americans and our economy, that our Federal financial regulators have effectively barred banks (and others) from providing financing against a homeowner’s equity, unless they can currently document an income (“Ability-to-Pay” rules). What if they need those funds to go back to school and/or start a new career? What if they need those funds…
…to pay off a divorcing spouse and keep their kids in their home until they finish school? It could be any number of reasons. Why is the government forcing them to sell their home (to access this equity), when they may not wish to do so at this time? (I am assuming the lender can safely lend to them at a relatively low-risk, loan-to-value ratio and also that both borrower and lender understand that if the borrower’s current income situation does not improve, they will eventually be forced to sell the home at a later date to pay off the mortgage.) Why should the government decide for us? I thought this was America?”, Mike Perry, former Chairman and CEO, IndyMac Bank
Self-employed find it’s not easy to get a mortgage
People whose primary income comes from self-employment receive 40% fewer loan quotes than the average would-be borrower, according to real estate website Zillow. Above, a home for sale in Carlsbad, Calif. (:enny Ignelzi, Associated Press)
By Tim Logan
Despite often earning higher incomes, self-employed borrowers have a harder time getting a mortgage than their salaried peers, according to a new study out Thursday. And as the ranks of the self-employed grow, that’s hindering the housing recovery.
People whose primary income comes from self-employment receive 40% fewer loan quotes than the average would-be borrower, according to data crunched by real estate website Zillow.
“It’s still pretty difficult to get a loan,” said Erin Lantz, vice president of mortgages at the online real estate giant. “We think it’s even harder for the self-employed.”
The biggest reasons why, she said: lower credit scores and more complex paperwork to verify income.
Although many of the self-employed who sought loans through Zillow’s mortgage marketplace reported higher income — an average of $145,000 for self-employed home buyers versus $80,000 for others — they were twice as likely to have a credit score below 680.
Many business owners mingle their personal and business balance sheets, Lantz notes, which can dampen credit scores and lead to bigger swings up and down in annual income.
“That can come back and impact your ability to buy a house,” she said.
Verifying and tracking that income can mean more work for a mortgage lender too, she said, and many risk-averse banks these days are deciding it’s not worth the trouble.
“It’s so much more paperwork intensive,” Lantz said. “Lenders are wary of going through the extra work it takes to underwrite the self-employed.”
But they are a growing slice of the housing market. Nearly 18 million Americans worked 15 or more hours a week as a freelance or independent worker this year, according to a recent study by MBO Partners, which provides services to independent workers. That is up 12.5% since 2011.