Mortgage FAQs: Self-Employment, Title Issues And Student Loans
Some of the most frequently asked mortgage questions concern things that people don’t generally plan on. Debbie Bloyd walks us through some of the mortgage issues that have stopped many borrowers in the middle of the loan process. You may have been asking some of these questions, too, and Debbie talks about them one by one, touching on topics such as self-employment, title issues, and student loans. You never know when these issues may come up, so you might need to find a mortgage professional to help you deal with them. Listen in for more.
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Mortgage FAQs: Self-Employment, Title Issues And Student Loans
I want to talk to you about things that happen during the mortgage process that nobody plans on, but I do. This is why you have to find a mortgage professional, somebody that knows how to deal with all the issues that are going to rise because you never know what they’re going to be. The easiest way to explain this is things that have stopped, the loan process for many of my borrowers, they’re different every time. We need to talk about them so that you don’t make those same mistakes or if you fit into these categories, we know how to keep you from making those mistakes.
The first category we should talk about is self-employment. Self-employment has taken a real toll because our taxes are not due until July. What’s happened is a lot of people don’t realize how that’s going to affect their loans, whether they refinance or purchase a property. If you are self-employed, the rules state that we have to have two years of tax returns, all pages. We have to verify what’s in there. If you turn in your taxes for the year, they haven’t been processed probably because the IRS has checked out so many people during this time. We’re not getting full reports of people receiving their tax returns at the IRS.
We can’t move forward on your new house purchase or your refinance until we get that. That’s been a little tough. A lot of people have put off their tax returns. If you haven’t been employed a full two years’ worth of taxes, you can’t buy anything right now. We would have to do something called a bank statement loan. My self-employed people, we have to be exact with our dates. I had a client that they’d been in business for two years, self-employed but they’d been in business for one year and eight months. That’s not two years. While that’s not close, that’s not close enough for the exact number of people in the mortgage business. They were unable to purchase because the rules are for two years exactly. They go back to the day they incorporated. They look for their documents. If you’re self-employed, you’ve got an LLC or a DBA or something that shows somewhere when you started your company.Everyone's got mortgage questions. Click To Tweet
If you don’t provide it to me, the underwriters are going to find it. They go to the secretary of state where everybody’s registered and they can tell me exactly when I started my business. I can tell you when you started your business too. If you think you can fit me, that’s fine. You forget that somebody somewhere will fact check us. Nothing worse than not being able to buy a house because you’re a couple of months shy of the deadline. Another problem is depending on the line of business you have, what kind of business license you have is how we have to prove your business. If you’re in a partnership, we need those papers, all pages. If you’re in an LLC, we need those papers.
I’m in a one-person LLC. I’ve got to provide my papers. If your certain businesses don’t have licenses, we still have to prove when you started your company. CPAs, a lot of this falls on them. If you don’t have a CPA doing your small business taxes, you need to get one. They’re the ones that can write the letters verifying. CPAs rarely fit, because they don’t want to lose their license. That’s a good check and balance system for the loan business before self-employed they get a letter from our CPA stating when we started. They get a letter from the CPA that says, “This is our profit and loss statement.”
If you don’t have a CPA, we have no one to get letters from. Therefore, you can’t get a loan. This has been a real problem for my self-employed borrowers, but there is a loan out there that I can help if you’re self-employed. It’s called a bank statement loan. Bank statement loans are great because they do exactly what they say. They use bank statements, all pages of a bank statement, maybe 5 to 7 if it’s your business bank statement. I need 12 to 24 months of bank statements for the lenders that are still doing these loans. A lot of them have quit doing them. I’ve got three lenders that still do these loans.
What they do is they take the income coming in your bank statements and they give you an income based on those numbers. Not the outflow, just the income. On any given bank statement, you may make $20,000, $30,000, but your expenses with employees and everything goes right back out. The good thing about the bank statement loans is it doesn’t go right back out. They give you a percentage of that as an expense for your business based on what kind of business it is. It’s not money in, money out like it says on your taxes. Typically, my borrowers are able to buy what they want but doing a bank statement loan. What that means is you still have to have good credit.
I pull your credit. They don’t look at the things on your credit report to give an analysis. They only look at the income side, but because we’re not using tax returns, it’s a different product. It doesn’t go through the normal channels. It’s called an Alt-A loan. Back in the day, it was called the subprime loan. They don’t call them subprime. That’s a dirty word now. We use the Alt-A. When we do these loans, they are sold and packaged with some of the lenders that do the loans. They keep them in-house and service them themselves. That’s why they can do the loans. No one’s buying these on the secondary market.
It is a Band-Aid for most of my self-employed people until they can either catch their taxes up or their taxes reflect the income. It will afford them to refinance and get a better rate. The rates on bank statement loans are somewhere between 6%, 7% and 8%, depending on your credit score. There are no prepayment penalties for them, but you won’t want to be in them longer than you have to be. At least six months to get established and then you can turn into something, but you’ve got to have filed those tax returns. That’s a good Band-Aid for my self-employed people. You can’t go bank statement loan if you’re not self-employed. If you’re W-2, that’s not going to work.You’ll never know when issues will come up with your mortgage. Work with a mortgage professional who knows how to deal with them. Click To Tweet
Title issues are another thing that we need to talk about. It’s not always with the property that you’re buying or the property that you own. What a title company does is the insurance that the lender and the customer take out to prove that there are no liens on the property that has not this loan moving forward. Nobody wants to buy a property that’s hindered with liens. Those would have to be paid off. A title policy says that between this date and this date, nobody followed lien on the property. The property is free and clear. That sounds great until it’s not. Mistakes happen.
My clients were refinancing their home that they’ve owned for a few years. Their process went great. Everything was great on their side. The week before they were supposed to close, the lender, the underwriter and the title department of the loan, it’s a big lender, their closing title people pull one last time to make sure that the borrower’s names did not come up on anything else, but they did. Somehow the husband of my couple that are refinancing their house showed up on his father’s home with a great big lien. After a week of people pulling their hair out, trying to figure out what this lien was. It’s a vendor’s lien. A vendor’s lien is like a roofer lien or a plumber’s lien. Somebody that’s in the trades that puts a lien on your house that you don’t pay.
If you fire your swimming pool company that puts your pool in and you think you don’t have to pay them, they can slap a lien on your property and you will have to pay them before you sell that property. This got all confusing. Nobody could figure it out and all that we’d come back with a whole two weeks later is that his name was put on his father’s property by mistake. We figured out it was the lien that he bought through another lender to buy his current home. I don’t even know how those could get mixed up. How could they be filed with the same name because their names are nothing alike. Title problems don’t always involve you. It’s something you did wrong. Sometimes title problems are something that happens on paper that gets filed incorrectly, a misspelling of a name.
Let’s say someone passes away. A husband and wife, and the wife passes away. She’s on the title. We have to get her off the title with the death certificate. Some of these things take a while to resolve. The title is very important. Everything is important. What happens is if names change during the process, people get divorced, they don’t take somebody else off the title. A guy goes to sell a house, his ex-wife’s still on title. We’ve got to get her to sign off on something. We’ve got to bring court papers in and debt disclosures for the divorce. It can get hairy. The more movement that you make in your life, the more times you change your name, the more times you move, the more times you changed jobs, the more times you move your money, the more complicated it is for us in the loan world.
Especially if you’ve owned a business, shut it down, bought another part of a business or a part-owner in a business and they got to see all the owners and what the percentages are. You can see why I have a headache every day when I leave the office. It’s unweaving all of this stuff. If you have questions about a mortgage, if you have anticipating issues, sometimes attorneys can always fix it all, but we can help as well. Let me know. I’ll be happy to do what I can. Interest rates right now are doing well. Anything can spook them and they go back up. If you were thinking about refinancing or paying cash out, pay off credit cards or cars or student loans. Another thing, student loans are in forbearance right now. That does not mean we don’t count them. In the loan business, we have to count all student loans in forbearance or not.
The government put an automatic forbearance on everyone’s student loans until September. While they thought they were helping out, that gets in the way of purchasing properties. We have to count those payments against you even though you’re not paying them, so says all of the lenders everywhere. Questions about your credit, late payments, forbearance, student loans, you’ve co-signed for cars or you’re trying to raise your credit score, please give me a call. I’d be happy to help. It’s what I do every day. It gives me a headache, but I love it. I wouldn’t trade it at any time. If you have questions about that, investments, life insurance, I do all these things, reverse mortgages. We’re going to talk on that again. A lot of people may have questions about that as well. Tune in to all my shows and I’ll be happy to help you. Thanks so much and we’ll be back with more.