Written by Danny Ponder | Photos by Zephyr McIntyre
Supporting small, local and family-run businesses drives our immediate economies, so of course we want to support these business owner's needs. The dollars earned are spent within the communities of which the businesses serve and the resulting synergy creates a cohesive, healthy, community.
Sometimes when I initially interview a self-employed client, they tell me that they make “X” amount of dollars annually, however, more often than not the tax returns tell a completely different story. The client may be thinking of the gross sales of the business as their income but when expenses and other deductions are implemented the BIG number is drastically reduced as verifiable income. This is the income that is usable for underwriting qualification. Sometimes the effect is an un-approvable loan due to the effective income.
On the up-side, self-employment offers creative tax advantages. Write offs are available to those who own their own businesses as opposed to those who are a typical salaried individual. Then again, write-offs for the self-employed lower the effective and verifiable income. It’s a fine line for an approvable mortgage loan being self-employed…
Previously spotlighted Sacramento Business owners above: Scout Living owners Erin Boyle and Sefan Betz Bloom, William Rolle of Cafe Rolle, Vanessa Lopez of Heart Boutique and Bill Sampino of Sampino's.
Typical documentation needed for self-employed clients do require an extra layer of documentation which usually requires involvement of a CPA or accountant. Additional items needed are: evidence of self-employment, year-to-date profit and loss statement(s) and balance sheet(s). The reason these are needed is for underwriting to get a sense of the business income stability since there is usually not a consistent verifiable paycheck. If for instance, income is lower in the most recent year of tax returns filed, the p&l will determine if this is trending and an underwriter could rely on the lower of the 2 years tax returns filed and not use a 2 year average. This can be a deal killer!
Good news…we offer programs to those who may be in this quagmire of not being approvable by agency (Fannie and Freddie) guidelines. As a solution, we offer a portfolio 12 month bank statement loan program where tax returns are not required. We rely on 12 months of business or personal bank statements that allows us to derive usable income from the deposits and make sure that the client has the ability to make the payments. We have had a lot of success stories with our product offerings for the self-employed.
More ways to say YES!
- Danny Ponder
- NMLS# 230269
- BANC HOME LOANS
- 2825 J Street, Ste 435
- Sacramento, CA 95816
- Cell: 916-947-4587