Nearly 28 percent of United States’ workers are what we call “the independent workforce”: the small business owners, consultants, freelancers, and “gig economy” workers. That’s upwards of fifteen million Americans—over 10 percent of the United States’ fully employed workforce.
And they share one thing in common—they can’t get a mortgage loan at a competitive rate.
Why? The answer lies in how lenders calculate worker income. Self-employed workers face different income-calculation formulas than traditionally-employed workers who get an annual W-2. Those differences adversely impact the ability of the self-employed to qualify for government-backed loan programs (i.e., Fannie Mae and Freddie Mac) that come with lower interest rates than non-government backed loan programs. Furthermore, one of the main advantages of being your own boss—the number of business-related tax write-offs you’re allowed to claim—has a costly offset when considering obtaining a mortgage loan.
This means a significant part of the workforce has been subjected to substantially higher interest rates, which don’t always reflect their credit-worthiness. Take, for example, a successful business owner with consistent cash flow from her business, significant equity in her home, and a credit score above 740. Compared to a W-2 tax filer, her write-offs impact her net income calculation. Therefore, she doesn’t “fit” in the traditional Fannie and Freddie-backed programs with the best interest rates. Until now, quality borrowers like her have been left out of prime market, and may even have trouble getting a mortgage loan altogether.
DLJ Financials’ – Professional’s Finance Program
DLJ’s new Professional’s Finance Program (PFP) is the first mortgage loan program specifically designed to bring mortgage loans with prime or near prime interest rates to self-employed professionals. This program recognizes that strong credit, borrower equity, and business cashflow are more important than employment status. Our approach to loan qualification is tailored for self-employed professionals. We review the applicant’s whole financial picture—cash flow, assets, home equity, and business bank deposits—which are different from W-2 net income requirements (e.g., tax returns, P&L reviews, or CPA sign-off). Of course, all of the ATR (Ability to Repay) standards are met, so the rates meet traditional risk standards.
DLJ PFP Program compared to other Self-Employed Loan Programs:
Fico = 720
Loan to Value: 65%
Loan Amount: $1,500,000
|30 Year Fixed Loan||7/1 Adjusted Rate Mortgage||5/1 Adjusted Rate Mortgage|
|Other Self-Employed Lender rates||6.875||6.750||6.625|
- – Prices reflected as of 11.9.17. Rates subject to change
If you’re part of the emerging independent workforce, we invite you to learn more about improving your mortgage financing with us. Take advantage of the financing you truly deserve!
- CNBC, NBR Report – The independent workforce is growing, and it’s growing fast”, October 10, 2016