Can I buy a House During Covid if I’m Self Employed?

The Self Employed among us have always had a slightly tougher go of it when it comes to financing (of any type). There’s a “pulse check” mid-process. You’ve been slaying it for several years but the Lender wants to know that you’re doing well RIGHT NOW. 

• Slow season or cyclical work? …. Get ready to prove the unprovable. 
• Reinvesting in your business? …. That will spike an eyebrow.
• Slow paying customer/aging receivables? …. Better put your accountant on a big retainer.

Now walks in a novel virus from the far east. The underpinnings of a robust economy audibly check and bankers quickly turn the sign on the door held by a triangle of string to show “Closed” through the glass.

This couldn’t happen at a worse time for you as a home buyer and business owner. Your family (and extended family) are counting on you to make this move happen. No pressure on you there, right?

Will this move actually happen? Can it close? You’ve afforded a much larger payment in the past. So why not now when the rates are so darn low?

Let’s zoom up a few thousand feet and soak in the topography from an aerial view.

What is vastly different in 2020 from any prior issues, we observe, is the progress of technology. It’s speed, it’s power, and the data that can be analyzed …. in real-time. Nightly downloads of portfolio performance. An analyst at the ready for the data drop. Slice, dice, and screenshot the “Red Zone” for a portfolio manager’s attention and reaction.  

Think about the last financial meltdown in 2009. Flip phones, CD’s, and the neo-tech of texting! Mortgage portfolio data needed to be requested, coded, produced, and a report run. Some taking hours or days just to compute the query run. By the time the red section was isolated the lending ship had already listed and another wave was approaching. Water cascading over the gunwales and alarms bells were ringing.

The unth(s)inkable was happening. Fannie Mae and Freddie Mac would both go bankrupt.

The two “safest” entities would reset their stock price to zero. The market capitalization of more billions than can be counted would evaporate. No; evaporated water returns as rain. This Equity wouldn’t return. It vanished.

You know that not everyone from the 2009 lending meltdown departed finance. Many crawled back in through a door left propped open by a colleague hiding in the mess. That same nightmare plays over and mature lenders now learn from those mistakes. As we head into cold ocean swales not yet charted what better time for a skittish captain to “test” all safety protocols? Cliches abound.  Batten down all the hatches.

Fannie Mae is releasing underwriting updates (the inbound filter on mortgage applications) on a regular basis. These updates are addressing the overnight losses that analysts are observing. Lending is (not so) slowly being restricted. Fair or not, many of these tightening protocols are directed at self-employed borrowers. Knowing HOW the weather is reported will help you navigate to a safe port with less risk. 

Here are the GoldCoast Recommendations for Self Employed Borrowers who are applying for Mortgage Financing:

I. Delay your passage to next year …. If you can. Seriously. if you can put your project on hold and pick it up again after the storm has passed this is a great option to consider.

II. You will need your CPA’s full cooperation. Because this mortgage application will be different than any past financing she helped gather paperwork to make sure to be on your account’s good side! 

III. I’ve you’ve had an interruption in revenue due to COVID and that revenue hasn’t been fully replaced with a post-COVID “bounce’ then this is most likely a TERMINAL position you find yourself. Payroll Protection Program (PPP) and SBA Economic Disaster Loans are NOT considered a replacement to income for a mortgage application. 

IV. If your business accepted funds from PPP or SBA during this period is it not a Kiss-Of-Death but please know the stimulus will need to be well documented and explained. For instance, if these entitlements were necessary for the survival of your business most likely that will tip the scale towards failure. However, if the loan proceeds were taken proactively or defensively and NOT used for survival but rather reserves and fortification the interpretation would be more acceptable.

V. Don’t place your fate in the hands of a rep at the mortgage call center. A mortgage application has enough data and variables that make each application literally one-of-a-kind.

When your uniquely profiled application tries its spot on a factory assembly line it’s going to get corners cut off, and jagged edges will be caught on gears until it gets swept off the conveyor into a side shoot labeled “rejects”. The call center doesn’t handle rejects.

Now your realtor is on you about an impending deadline and your call center rep’s VM is full with an out-of-office message from last month. Instead, there’s a status letter being printed and mailed to you within 7 to 10 days. Is this really how it ends? A letter. Please.

VI. Place your trust with a person and company that is accountable based on a referral or recommendation. If you focus on finding the lowest rate possible you will. But the rock bottom rate is quite often paired with a nameless and faceless advisor – which will prove to be expensive and frustrating when things get wiggly.