Do you feel like lenders are doing everything they can to not make loans instead of make loans? I do. Many of them tease you with a loan approval, but then, GOTCHA! They have a condition attached that makes it impossible to get the loan done.
This series will examine some of the conditions we mortgage originators see that sabotage otherwise strong loan files. I will try to point out the steps to take so that these gotchas don't happen to your clients. I encourage other mortgage originators to contribute to this series. We can either re-blog each other's articles and/or add each other as contributors to our ActiveRain outside blogs so that we can educate our real estate agents and have content to provide to our readers.
The first gotcha I would like to prevent is when the lender tells my client that their money is not their money. This can happen to self-employed clients.
Many business owners have business bank accounts. When a client is a business owner, and wants to use funds from their business bank account, lenders usually have a condition that reads something like this:
"Applicant to provide letter from tax preparer stating that the applicant has 100% access to the funds from the business bank account, and that the withdrawal of these funds will not effect the functioning of the business"
Here's the problem: clients are having a very difficult time getting this letter from their tax preparer. Understandably so. Tax preparers do not want to be liable for making the statement required by the lender.
So, you ask, what is the solution? The solution is to prepare early. Lenders do not require this statement from a tax preparer if the funds are in a personal account of a self-employed applicant. If the applicant transfers the funds needed to a personal account, and keeps it in this account for two to three months (depending on the requirements of the lender) then these funds will be considered seasoned funds, and they can be used for the down payment, closing costs, and/or cash reserves.
It seems kind of silly, doesn't it, when a sole proprietor has to play this game. Suppose I had a bank account called "Phil's Mortgage Business". I am a sole proprietor, and the lender is telling me that this is not my money to use? Well, now that we know the rules of the game, let's play by the rules of the game.
My advice to real estate agents is to ask your self-employed clients at your first meeting if they are planning to use funds from their business account. If they say yes, e-mail them this blog post!
Phil Caulfield NMLS #386911 APMC #1850 has been helping people obtain mortgages since 1985. The views, articles, postings, and information listed at this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.