With rising home values and low mortgage rates, the timing is ideal to refinance or buy a home. Spoiler alert: If you’re self-employed, be prepared for the amount of requested information and analysis that awaits you.
“Surprises are foolish things. The pleasure is not enhanced, and the inconvenience is often considerable.”
This quote from Jane Austen sums up the mortgage process for business owners and self-employed individuals since the 2008 financial crisis. Borrowers are often surprised and overwhelmed when they learn about the new mortgage process. Additional information to disclose, a higher degree of scrutiny and longer lead times is the new reality.
The good news is that information is power and preparation is the key to success. Get a head start in navigating the mortgage process with these five tips.
- Have a preliminary discussion with a mortgage loan originator before applying for a loan
This is the most important starting point for self-employed borrowers because there are hundreds of variables that will affect the process, product and rate. Experienced mortgage brokers can lead a borrower through the preliminary options and considerations by asking a slew of questions to help set clear expectations.
- Seek an income pre-approval in advance
Borrowers will save time by getting an income pre-approval before they actually find their dream home or want to lock in a rate. Most banks and brokers offer an online application such as this. A credit report is pulled and personal documents are requested during the application process. The feedback provided is not a loan commitment, but it does generate a conditional approval for a certain period of time and is a good indicator of the conditions and terms.
- Be prepared for lots of questions and document requests during the application process
As the loan is underwritten, every aspect of income, expenses and balances are verified and analyzed. More complicated situations or greater year-to-year income fluctuations will result in additional requests and analysis. These additional requirements can add two to three weeks to the overall process, unless you work in advance.
- Collaborate with your accountant, business banker, attorney and mortgage loan originator
Your partners know you and have access to the information and documents that may be requested. For example, if your business has a loan with a maturity of one year or less, you may need confirmation from the bank that the loan will be extended. Don’t hesitate to ask for help from your accountant or banker.
- Be patient and don’t take it personally
One of our business clients who was working with a Park Bank mortgage originator stated, “I didn’t have to give you this much information for a $5 million building loan.” It’s not personal, it’s the nature of the secondary residential mortgage market and the regulatory environment. Verify everything is the name of the game today.
Since rising home values are creating an opportunity for debt consolidation and lower monthly payments, don’t wait to begin the process. Contact your mortgage professional to get more details and give yourself some time, because the industry and guidelines are constantly changing.
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*The ideas presented herein are for educational purposes only and are not intended for underwriting purposes or credit decision-making and refer to conventional conforming residential mortgage loans. See a mortgage loan originator to discuss details specific to your situation. Park Bank is an equal housing lender and a member FDIC.