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We have excellent credit and no debts. Have been pre-approved for $400k, selected a house for half that price and... were not able to get a loan.
My husband has been self-employed for almost 3 years. He is in retail service business, and during the first year he provided the service himself. Then he started sub-contracting, and eventually sub-contracted about 85% of all jobs during the second year. Then we moved to a new state, and 100% of jobs have been sub-contracted during the last year. He is working from home now, on the phone and over the internet, and he has 5 sub-contractors working with him. We relocated, but the business is technically in the same location.
Since we moved here last summer, we don't have a full year tax return from the new state. That was the reason why we could not buy it as a primary residence. And since our last tax return IS for the address in the new state, we could not buy it as a vacation home either.
We got a denial from a local bank, is it worth trying with a different lender?
We have excellent credit and no debts. Have been pre-approved for $400k, selected a house for half that price and... were not able to get a loan.
My husband has been self-employed for almost 3 years. He is in retail service business, and during the first year he provided the service himself. Then he started sub-contracting, and eventually sub-contracted about 85% of all jobs during the second year. Then we moved to a new state, and 100% of jobs have been sub-contracted during the last year. He is working from home now, on the phone and over the internet, and he has 5 sub-contractors working with him. We relocated, but the business is technically in the same location.
Since we moved here last summer, we don't have a full year tax return from the new state. That was the reason why we could not buy it as a primary residence. And since our last tax return IS for the address in the new state, we could not buy it as a vacation home either.
We got a denial from a local bank, is it worth trying with a different lender?
What was the bank's stated reason for denying the loan? Was it because of your husbands self-employment income or was it because of the recent move?
I have no idea what underwriter's think, but I would think that if your husband has 1099 forms to prove his stable self-employment income from the last 2-3 years, as well as evidence that his business is still bringing in money, that should be ok. Then again, I'm not sure normal logic always applies to mortgage underwriting.
It would not hurt to talk to another lender, just to get a second opinion. You might want to try a smaller broker, even if you can't get a loan at this point, a good broker will at least give you advice on what you can do to get one in the future.
No, his income qualifies us for a much bigger loan. It is all because we moved. They say they are not sure if he can run his business remotely. That there is some kind of requirement that the business is in the same location for 2 years. And our argument that the business is still in the same location did not help.
It can be like moving a scuba business from Florida to Idaho......you don't know that the new business, meaning the new clients will be as bountiful with the new location, as the old. Okay, a bit extreme, but let's take an insurance agent or a real estate agent, moving from California to Idaho. How can the lender gauge whether your husband will be successful in a new location? Even if his customers are the same, the question will remain, can he remotely run the business? Chances are, he'll be fine. But there are just as many that fail in a move. He doesn't have a full year showing he can remotely run the business, so scrutiny will be very high. All that said, it doesn't mean a loan is impossible, but you need to understand the argument.
How many years tax returns are being used for consideration? It can be done, if you have a tax return filed showing the new address. You need to find a lender that delivers to Fannie Mae directly. That's your question: "do you offer Fannie Mae direct financing?" Not Fannie guidelines, not an investor that follows Fannie Mae, but someone that delivers directly to Fannie Mae (and they still service the loan). Once you find this, your next move is to request the loan officer (or processor) to run the scenario thru their Desktop Underwriting system. If the approval comes back with a requirement for income to to supported with 1 years personal returns reflecting at least 6 months of self employed income (in the new location), you should be fine.
Make sure nothing else stinks about that loan......no slow payments on a credit card........no old baggage......no deposits of mysterious nature......
SmartMoney, thank you for your reply!
Our last tax return shows the new address, and the one before shows the address in the old state.
Could you please explain what you mean by:
Quote:
Originally Posted by SmartMoney
Once you find this, your next move is to request the loan officer (or processor) to run the scenario thru their Desktop Underwriting system. If the approval comes back with a requirement for income to to supported with 1 years personal returns reflecting at least 6 months of self employed income (in the new location), you should be fine.
If it does not come back with a requirement to provide 1 year personal tax return, then it is not fine? Can they run our scenarion through their Desktop Underwriting system without having the tax returns?
Also, the previous lender said that they cannot know what was our income for the last 6 months. What if we made all the money in the first 6 months of the year? We filed state taxes, but they do not consider state tax returns.
And why cannot we buy it as a vacation home? The lender's concerns become irrelevant in this case - if the business is not doing well, we move back to California and continue running it the same way we started.
According to the last 2 tax returns, we have enough income to rent a place there too, or we can stay with my in-laws (they will provide a letter that we are always welcome). And we actually consider spending at least some time each year in the old state. But why should we move back and buy the house remotely? And if it needs to be so, how soon after we move back can we buy a vacation house here? Will we need a new tax return showing that we really moved away?
The gold standard was, take 2 year average of the 1040's and use that for qualifying. Year-to-date is rarely considered, and when it is, its with a very expensive audited P&L (I have yet to see one ever turned in). When Fannie Mae came out with their automated system (DU), it was to allow those that would normally not get a loan using manual underwriting guidelines. For example, you could have someone, self employed for 18 months, 1 years tax returns, 420K in the bank, 800 credit scores with 25% down, not be able to get a loan due to manual underwriting criteria, which required 2 years tax returns. Fannie Mae does have provisions for self employed with just one years personal tax returns, requiring at least 6 months of self employment. It sounds like your lender got this finding on the automated underwriting system and doesn't feel comfortable and has added their own requirements on top of it. You choice is to either open the books to them (if they are willing to look) and show them that your are able to conduct business from afar, or get a letter from your accountant stating the business has not been compromised by being relocated. At this point, based on the direction your situation has taken, I'm betting this lender won't be convinced, which is entirely within their rights.
It does sound like you've attempted to mold yourselves into whatever scenario will work (owner occupied to investment, free rent and so on), and that is not a good sign, and the lender is correct to bow out. What the public doesn't realize, mortgage financing is contracting, become more difficult by the day. Mortgage lenders now have a vested interest if a mortgagor doesn't make it.
I think you should try another lender and if you hit the same wall, wait another year.
So, basically, we need someone who delivers directly to Fannie Mae in order to avoid the lender adding their own requirements? And they should request only 1 year of tax returns and not 2, since we want to make sure we go through the automated system?
Also, if we wait another year, can we be sure that the lender will not require 2 full year tax returns from the new state? Since we moved during the summer, it would mean waiting 2 years.
We recently closed on the loan with US Bank. It is a conventional loan with 5% down. They did not see any problems with our relocation, but I must mention that we have our business checking account with them.
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