I'm Self-Employed. I Can't Buy a House in Santa Barbara.

NOT !– This is simply not true! I hear this from consumers every week and there is some serious misinformation out there.

In Santa Barbara, most people live in our area due to the “lifestyle” (i.e., surfing, outdoors, etc.). Therefore, I would say 60% to 70% of my applications have some form of self-employment income. Therefore, compared to the national average we see a higher percentage of these types of consumers. I can guarantee to you that consumers don’t get declined because they are self-employed. This is an unfortunate misconception.

The mortgage industry has standard rules pertaining to the type of documentation which is necessary for a self-employed Borrower. These are the same “full documentation“ rules that have been in existence since I started in the business in 1991.

Here’s the “rub”….. There are 2 main reasons that the self-employed Borrowers have a more difficult time getting a mortgage loan.

1) For the most part, Loan Officers and Processors don’t have the proper experience in handling this type of borrower profile. Not only do these Borrowers have cumbersome partnership/corporate tax returns but they are usually is conducting numerous business transactions simultaneously. This complexity usually leads to an improper evaluation of the consumer’s situation and results in a decline of the loan request. Therefore, consumers need to select a Loan Officer that has vast experience with the self-employed Borrower.

2) Most self-employed Borrowers try to take MAXIMUM advantage of the deductions allowed by the IRS. Unfortunately, a high percentage of these consumers simply get overzealous with this idea. Sure, you might be able to write-off the Dodger tickets since your brother in-law is a “customer” but was that a “real” expense? No! Therefore, if this is done too frequently, the “expenses” are overstated. This mistake leads to an income stream which is usually insufficient for the loan request!!

There you have it! I’ve been able to finance many self-employed Borrowers over the years and a lot of those files were not that the difficult.

The main problem for those who didn’t qualify is that they simply got “crazy” with their deductions (Dodger tickets. Really??). Also, during the “no doc” loan era, this type of Borrower seemed be more of a “risk taker” and happily took-out huge loans or large HELOC’s. Therefore, a lot of these Borrowers are simply “over leveraged” as it relates to their “true” income.

Happy House Hunting!

Ken Doss
Community West Bank
Santa Barbara, CA
kdoss@communitywestbank.com