There are many steps in the process of purchasing a home that it’s often overwhelming to know what to look for or what is needed for many people, especially first-time homebuyers. While many people know how much home they may be able to afford, getting a loan can still be a relatively opaque experience, especially for first-time homebuyers and the self-employed.
Whitney Fite is the senior vice president of strategic accounts with Angel Oak Home Loans and has been serving the Atlanta community for 25 years. We talk to him about what homebuyers should know about current lending practices, what first-time homebuyers should look for in a lender and what self-employed residents should do to help get approved for loans.
Q: What are some of the major concerns that you are seeing from consumers right now when it comes to homebuying and mortgages?
Obviously lending standards have gotten more strict over the past few years. We call it fitting in the box, and the box is more restrictive. The more moving parts you have in your financial picture, the harder it is to fit in that box. Lending guidelines are loosening up, but there is still a large number of people who don’t fit that mold.
Also, there’s still an inventory crunch. When you’ve got multiple buyers fighting for the same home as it comes on the market, a couple of issues impact lending. First, they sometimes agree to things in the contract to look better in the offer, but can be hard for them to maintain.
Second is they’ll bid above the list price and they’re happy to do that to get the home. But from a lending perspective, that can cause problems on the appraisal side that impacts the lending given.
Q: What advice would you give to first-time homebuyers who are considering purchasing a home in Atlanta right now?
Pre-planning and being proactive is the best advice. As early as possible, partner with a great Realtor and partner with a lender you feel comfortable with. Ask friends and family members which lenders they have worked with — get three or four names and reach out to them and explain that you’re looking for someone to represent them on the financing side. Figure who you feel is the most knowledgeable, who you get along with the best and who you trust the best. At some point it will be personal, so you’ve got to trust that person to have that rapport.
Ask that lender to see if they deal with your situation. Even if they say no, that’s not a deal breaker. Inevitable, you will have a lot of questions and you need honest answers to those questions. If someone isn’t used to that or doesn’t like that, it is better to find out up front than through the process.
Q: What are the questions that you would recommend people ask potential lenders to find out if they are the right fit?
I’d ask them how long they’d be in the business, what’s their bread and butter? Do they work by referral or is it lead based business? What you are trying to figure out is are their clients a transaction or do they want to build a relationship?
What programs they have available? What are their rates and terms and costs? You have to find out all that. Look at what their process is like. Normally you’re looking for someone who can provide that information easily. I think those are the high button points I would do.
If they’re looking to buy something – do you do much on condos? Or if you’re looking at a specific area, ask if they work in the area much? Those are important too.
Q: I saw that you have a lot of experience working with self-employed customers. First, can you explain the difficulties that self-employed people have when it comes to securing financing?
Self-employed people have the most difficult time fitting in the box. When we underwrite a loan, we are interested in two years’ worth of income statements, employment history and housing history. We want it to be stable. If you’re self-employed, and depending on your business, it can be hard to be stable. There’s going to be fluctuations. Sometimes you add a big client or lose a big client. A lot of moving parts in that two years look bad. We also try to project out for three years, and that is hard to do for self-employed people.
Our tax laws are written to where the self-employed, depending on business, have abilities to write off or write down their income more than a W2, so we look at the tax forms, and that is not necessarily indicative of their monthly income.
Q: What are the options available to self-employed people who are looking to buy?
Before the mortgage crash, the answer was a standard income loan, but those are now illegal. All mortgage lenders are held to verifying ATR, ability to repay. This does not mean you have to use the traditional two years of returns. The most common one we have done is the bank statement loan. In lieu of tax returns and profit/loss statements from CPAs, we do an analysis of average of deposits in personal account in 12-month time frame or business account for 24 months. We’re creating and developing and verifying what the cash flow is for our clients. We’ve had a tremendous amount of success closing on homes with these programs. The self-employed are the hardest hit in the new mortgage laws and restrictions.
Q: What recommendations would you give to self-employed clients looking to buy a home?
First, I would call their lender or find a lender they can trust and then be extremely open and honest about the information they are providing. A seasoned professional will want to know about the business, how long they’ve been employed, etc. Make sure your lender knows what boat you are in and make sure they provide a bank statement program.
One thing to look out for is if someone says they offer a stated income loan. There’s no such thing today. The warning would be, be wary of someone who may want you to say that you won’t be occupying the home in order to qualify for other loans. That is illegal, that’s fraud. You’re signing a document that says you’re going to occupy a building or not.
We rescue a lot of deals at Angel Oak Home Loans. Sometimes people are at the last stage or far into the process before they find out they can’t do it. When you’re self-employed, that happens a lot. If I was self-employed, I would ask a tremendous amount of questions and be sure that they have a solution for you. We know what happens because we often rescue it. If I’m the buyer, I would need to have certainties. You should use that to your advantage and ask questions and make sure you’re getting the right answers and get things in writing. When they start asking for a lot of letters from CPAs, that can be common in the process, but that could be a point to ask questions. Why do we need the letter, and what are we trying to overcome?
That’s one of the other reasons that I would suggest one of the referral sources be through the realtor. They know who to trust and who does a good job and who works in that area. They are a great resource to lean on.