Posted: 2:17 p.m. Thursday, May 23, 2013
By Charlene Oldham
These days, it can be difficult to get a mortgage loan even if you have a solid employment history and credit score. But the bar can be even higher for those who are their own boss.
In the past, many self-employed people qualified for stated-income mortgages that didn’t require a ton of paperwork to prove income.
Today, self-employed borrowers must typically provide at least a couple of years of tax returns and other documents to show they have the net income needed to support a mortgage. Experienced entrepreneurs in stable industries can sometimes have it easier when demonstrating they are worth the financial risk, mortgage experts say. But, sometimes, even experience isn’t enough to convince lenders to take a chance in today’s market.
“The whole financing game changed in 2008,” says Bill Hays. “They limited borrowing very aggressively through that year.”
As a carpenter who consults on rehabilitation projects, Hays has first-hand experience with the tighter lending requirements as both a businessman and a homeowner. Hays has been through a couple of rounds of refinancing since buying his 4,000-square-foot Victorian home near St. Louis’s Tower Grove Park in 2001.
So he was a little surprised when a local bank recently turned him down for a loan that would have consolidated some of his debts and lowered payments and interest rates. After all, Hays has more than 20 years of experience in the industry and healthy credit score. The bank also already holds the mortgage on an industrial property he owns.
“And I made more money than ever last year and still got turned down on my loan,” says Hays, who speculates a hurried appraisal undervalued the house, which had been appraised at much higher market value just a little over a year earlier.
“What killed my appraisal this year were the comparables they used. Mine is literally a new house transplanted into a 1890s Victorian structure,” he says. “My circumstance is unusual and, bankers being bankers, they don’t want to get out of their box.”
Hays is planning to complete projects on the third floor that he hopes will boost his next appraisal and help him break through that box.
Here are a few tips for other self-employed people looking to land a mortgage or refinance an existing one: