Just Approved: Self-employed homeowner gets better rate by waiting
Published 8:01 pm, Friday, June 21, 2013
Mortgage banker and broker: James W. Argo.
Property type: Two-bedroom, one-bathroom in Bernal Heights.
Appraised value: $1.01 million.
Borrowing: $625,500 (first).
Rate: 3.625 percent with no points
Argo was introduced to his clients in the fall of 2012, and they came to him with a specific problem. Due to the changed income classification of the lead borrower at his closely held firm, he was getting declined for financing elsewhere.
Their actual income was clearly more than adequate. But due to changing the compensation plan earlier in the 2012 tax year, many lenders weren't accepting it.
After meeting with the borrowers and studying the situation, he understood their income and compensation and how to interpret that to a lender.
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Their current rate was almost 6 percent, so their frustration with getting turned down in a 3 percent rate world was understandable.
Their credit scores were fine; the property value was not an issue and considering the increases in San Francisco property prices, this was becoming an ally that would only improve the likelihood for lower interest rates.
Essentially, to be effective and successful for them, he had to push their timing out to a window of perhaps some four or five months away from their initial 2012 consultation.
Argo counseled his clients to wait 3 1/2 months, allowing 2012 to come to an end so they could immediately file their taxes and show the final 2012 income to satisfy the "consistent and ongoing nature" of lending rules for income.
An additional time hurdle taken into account and awaiting them was the IRS's typical annual slowness in processing Form 4506T.
Lenders accept an applicant's income as bona fide only after the IRS confirms - via the 4506T - that the tax forms used in the loan application match the returns submitted to the IRS.
The absolute worst time of year to request a this is any time before or close to April. This means that February to May are months where the tax verification can take several weeks or longer for the IRS to locate the filed returns and reply - even if they are filed electronically.
Self-employed applicants and those in closely held companies can sometimes be flexible as to how they report income. This can help or hurt you, so be aware. The good news here is the clients' housing payments dropped by $890 per month.