Author Topic: Doing a Mortgage Refi - how do I explain decreased biz income?  (Read 1051 times)

LifeHappens

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Doing a Mortgage Refi - how do I explain decreased biz income?
« on: February 17, 2020, 02:48:06 PM »
A question for the mortgage lending types around here. I'm in the middle of doing a refi with my Big, Evil bank. The process is well into the underwriting review and I've been asked kind of weird question.

I am self-employed and have been for over 10 years. My income history is solid, although it has ebbed and flowed a bit, as these things do. Combined with my DH, we have been at or above 6 figures in income for many years. We also have $750,000 in combined invested assets, so we're a pretty good bet on a $225,000 mortgage.

Between 2017 and 2018, my business income dropped $21,000 and the underwriters want to know why. The true answer is because I decided to work less :) I dropped one contract and my DH started to claim Social Security to make up the income difference. I'm assuming I should not tell the underwriters the whole truth!

Any suggestions for words and phrases I can use to appease their delicate sensibilities?

Dicey

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Re: Doing a Mortgage Refi - how do I explain decreased biz income?
« Reply #1 on: February 17, 2020, 03:16:10 PM »
Not sure why the truth wouldn't work perfectly fine. If you show it was a deliberate choice and not some random fluctuation, I'd think it would be better.

dandarc

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Re: Doing a Mortgage Refi - how do I explain decreased biz income?
« Reply #2 on: February 17, 2020, 03:24:43 PM »
+1 - honesty is the best policy.

LifeHappens

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Re: Doing a Mortgage Refi - how do I explain decreased biz income?
« Reply #3 on: February 17, 2020, 04:26:26 PM »
I'm not planning to lie. We all know from job interviews and first dates some ways of phrasing the truth are more effective than others. I assume, "I decided to work less for better work/life balance" is not the best option. What I'm looking for is some way of translating this into corporate finance speak.

Aegishjalmur

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Re: Doing a Mortgage Refi - how do I explain decreased biz income?
« Reply #4 on: February 17, 2020, 04:39:45 PM »
Former UW here.... tell the truth.

"In 20XX I decided to reduce my hours worked so I did not renew one of the contracts I had previously had. At that time my spouse started to claim SS of $XXXX per month(as documented by SS award letter). This made up for the reduction in income. I have no plans to reduce my number of contracts any further for the foreseeable future."

A reasonable UW will first try to qualify you with the lower income figure, though you may be asked to provide an additional year of taxes to show it wasn't a year over year decline. This isn't the UW being deliberately difficult. Fannie Mae/Freddie Mac require the UW to address stability and continuance of income when using it to qualify. They have a little leeway on wiggle room, but if close to 10% decline you start triggering the questions. We would see issues like this all the time and usually it was a pretty simple work around.

LifeHappens

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Re: Doing a Mortgage Refi - how do I explain decreased biz income?
« Reply #5 on: February 17, 2020, 04:58:14 PM »
Former UW here.... tell the truth.

"In 20XX I decided to reduce my hours worked so I did not renew one of the contracts I had previously had. At that time my spouse started to claim SS of $XXXX per month(as documented by SS award letter). This made up for the reduction in income. I have no plans to reduce my number of contracts any further for the foreseeable future."

A reasonable UW will first try to qualify you with the lower income figure, though you may be asked to provide an additional year of taxes to show it wasn't a year over year decline. This isn't the UW being deliberately difficult. Fannie Mae/Freddie Mac require the UW to address stability and continuance of income when using it to qualify. They have a little leeway on wiggle room, but if close to 10% decline you start triggering the questions. We would see issues like this all the time and usually it was a pretty simple work around.
Thank you. This is really helpful.

 

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