How brokers can help those with non-traditional income
One of the most frequently discussed issues in the housing market right now is the lack of new construction in many areas of the country.
Limited new housing not only creates a supply shortage in many markets but also forces buyers to consider much older housing stock. This often means additional costs once a house is acquired, unlike the turnkey nature of new homes.
One mortgage executive recently discovered an additional challenge while looking into building a new home of her own. Because she was self-employed, she had fewer financing options than someone with a W-2 income.
Jessica Bluj (pictured top), president of the mortgage division at American Pride Bank, faced a stark reality when looking for a construction loan. Many brokers working with self-employed borrowers have likely encountered the same walls that Bluj ran into.
“I've spent the majority of my career probably focusing more on the non-QM side,” Bluj told Mortgage Professional America. “I’m really brand new to the whole construction space. I mean, it's always been an area that I've always seen an opportunity. It wasn't until about two years ago, when I left my previous bank and was getting into the world of consulting.
“I decided that I was ready to build a home, and as a self-employed consultant, for the first time in my entire career, I realized how difficult it was and how few options there are, especially one-time-close construction financing.”
Times have changed
Bluj noted that for years, there wasn’t much need for self-employed construction financing. However, times have changed. More people either work exclusively in the gig economy or have fractional jobs alongside their standard 9-to-5, which require more specialized financing options.
“There is such a need in our industry right now,” Bluj said. “The days when people have one job, and they're a W-2 employee for 30 to 40 years, and that's it, those days are over. Maybe they have a W-2 job, but then on the side, they're a sole proprietor, and they have their own little business where they're making money on the side. Or maybe it's a husband and wife, and one of them has a W-2 job while the other is self-employed.”
She said it’s why brokers need access to these specific lending products, because these borrowers are far more common than ever before. While these borrowers might have unique income situations, in many cases, their credit profiles make them excellent customers.
“I feel like today in society, it's a very regular occurrence where people just have more complicated income situations than they did 20 to 30 years ago,” she said. “It's our obligation to make sure that we're creating products that help everybody. These are good borrowers. These are borrowers who have excellent credit. They have significant assets. They can put down 25% to 30%. They have significant reserves. These are really creditworthy borrowers.
“But what we've seen in this space is because they don't have what we would say is traditional income documentation, your W-2s, your tax returns, pay stubs, things that would be normal, it’s often very difficult for them to get a loan.”
Having more options
Bluj said her experience on the other side of the construction loan transaction was eye-opening, and one that mortgage brokers should note when meeting with a construction loan customer.
“I went to several banks, being in the mortgage space for 30-plus years, thinking, ‘Oh, this is going to be easy,’” she said. “And all of a sudden, I realized that in the construction space, there are just not a lot of options, and most people have to go to little community banks or commercial banks for construction loans. Unfortunately, once you're done with construction, your only option is to find permanent financing, which would require a second set of closings, assessments, and approvals.”
She said the mortgage industry must create more opportunities for people to obtain new-construction financing that is simple and straightforward. She was able to set up a single-close product with American Pride Bank, and more of those programs would help consumers and brokers alike streamline the process.
“In my mind, I was like, ‘Well, this is just ridiculous,’” Bluj said. “I can't be the only self-employed person who wants to build a home, especially with the demand for real estate. I feel like so many people are looking at potentially building a home. And, for me, I just saw that our industry was just doing a really poor job at providing people with construction lending.”
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