March 12, 2019
What Sorts of Homeownership Options are Available for the Self-Employed?
In a recent report detailing the ongoing impact of the 2008 financial crisis on self-employed households, the Urban Institute uses American Community Survey data to compare them to households in which owners are salaried. This latter set of people finds income easier to prove, because lenders need merely peruse their W-2s and pay stubs in order to verify and determine their likelihood of future income. For self-employed individuals, on the other hand, lenders must pore through previous tax returns and bank statements in order to determine whether a mortgage application may be allowed to proceed through approval. Because of this, it might be said that homeownership options are a bit different for the self-employed than for the salaried.
The data examined in the report reveals that self-employed individuals—who make up nearly 10 percent of the working population, tend to have higher median incomes than the salaried, and enjoy a higher overall rate of homeownership than the salaried—were nonetheless harder hit by the effects of the recession, and have been slower in recovering. Not only did income drop further for the self-employed during the crisis than it did for the salaried, but so did mortgage use and homeownership—and these latter rubrics dropped for the self-employed even when their income held steady. These effects on homeownership have remained even as the economy has otherwise recovered. This indicates that lenders have tended to view the self-employed, whose incomes have not quite risen to pre-crisis levels on average, as larger credit risks than the salaried, even where all else has been equal—and that, perhaps, they continue to do so.
There are, however, a classification of loans known as “Non-Qualified Mortgage” (“non-QM”) loans that are aimed at smoothing the gap—because they do not require borrowers to prove they are capable of making payments via regularity of income. Currently sitting at around 3 percent of the market, some predict these will double in usage in the coming years.
Title defects can occur in any property transaction, whatever the employment status of the buyer. We at Topouzis & Associates, P.C. are experts at ferreting them out and disposing with them in advance of closing. We take pride in the great amount and quality of experience we bring to the closing table in Rhode Island, Massachusetts, and Florida. Contact us if you want a partner in your property closing—one who makes everyone involved feel like family.