Self-Employed and
Buying a Home
T
By Jayson Stebbins
Mortgage Professional
Jayson Stebbins is a 23 year
veteran of the Mortgage
Banking industry and an
Accredited Mortgage
Professional through the
Mortgage Bankers Association.
He grew up in Morgan
Hill and currently lives in
Gilroy. He is the local Branch
Manager of Guild Mortgage,
a 56 year old Mortgage
Banking firm. His office is in
Morgan Hill and serves all of
Santa Clara, San Benito, and
Monterey counties. You can
reach Jayson and his Team at
408-782-8800 or at jsteb-
[email protected]
here are many choices in the
world that we face every day that
can sometimes create a paradox. Where
both options are not great, and one may
actually cancel the other out. I am not
talking about satellite vs. cable or paper
vs. plastic: we are talking about the
choice and paradox of the self employed
business owner or contractor. The choice
of paying high income taxes or qualifying
for a mortgage.
Let me explain: in the days before
the mortgage meltdown, and before the
abuses that came about for the Alt-A or
sub-prime lending, self employed people
actual had a few years of mortgage
lender “utopia”. They could manage
their tax returns as they saw fit, write off
expenses, take depreciation and reduce
their gross income down to a manage-
able net number. That allowed them
to take advantage of the benefits of self
employment that come from the write
off’s the IRS allowed. Then when it came
time to qualify for a mortgage, even
though they didn’t show a lot of income
on the tax returns, lenders would audit
their bank statements, see the cash flow
flowing through the business accounts,
and be able to qualify the borrower based
on the overall picture, the cash flow and
their “stated income”.
Now those loans became one of the
primary programs heavily abused and
ultimately were done away with after
the meltdown. You can still find them,
but they are private in nature or port-
folio lenders and expensive. Traditional
mortgage lending has taken the stated
income loan off the table. So now what do
you do if you are self employed?
Well now it becomes more strategic.
There needs to be conversations with long
term planners and tax accountants. If you
know you want to buy a home, do you
report higher income, pay more taxes for
a few years so you can qualify for a home?
Do you wait, save money for a much
larger down payment so you don’t have
to borrow as much? How do you find the
balance between reducing your tax rate/
payments and qualifying to buy a home?
There is not an easy answer to this
problem, thus a label of a paradox. There
are a few tools out there to help. The
conventional lending world has created
a “one year waiver” rule which, for
qualified clients, will allow us to qualify
self-employed families using just one
year of tax returns. This will help if there
has been some cyclical up and down in
income, or a strategic approach to filing
one aggressive income year. Also available
are programs that use “asset depletion” or
“pledged assets” - these programs are for
borrowers who have a large asset based
but difficulty proving their income or
file with lower income numbers. If you
are willing to pledge a portion of assets
against a default, or if your asset base is
large you can offset some of the qualifying
payment with your cash accounts.
These programs are designed to help
where they can, but will not fit all clients.
Being self employed and buying a home
can be very difficult, but planning, fore-
thought, and a good group of advisors can
make it a reality.
Jayson Stebbins is a licensed mortgage agent in CA for Guild Mortgage Company NMLS#38463;
Licensed by CA Disclosure:Licensed by the Department of Business Oversight under the California
Residential Mortgage Lending Act. NMLS Company Unique ID 3274; Branch Unique ID 38480. The
postings on this editorial don’t necessarily represent the positions, strategies or opinions of Guild Mortgage
Company or its affiliates. This information is not guaranteed to be accurate and shall not be construed as
a guarantee of loan approval. All loans are subject to underwriter approval, and are subject to change
without notice. Equal Housing Lender.
68
GILROY • MORGAN HILL • SAN MARTIN
JANUARY/FEBRUARY 2017
gmhtoday.com