New offer shakes up the marketplace
To be self-employed is to gain independence from the workplace, but it also makes it trickier to qualify for a home loan – what with the standard two years’ worth of proof of running one’s own business. LoanStream is looking to change that, with its “one-year self-employed” product.
“Most of the time, you have to show a borrower has been working for at least two years – whether W2 or self-employed – and then to qualify for a non-QM loan as self-employed, you have to show two full years of self-employment,” Will Fisher, executive VP of non-QM & jumbo lending at LoanStream told Mortgage Professional America. “With this new product we just launched at LoanStream, we’re looking to change the game.”
Here's how it works: “This program allows a borrower who has been W2 in the previous year and has become self-employed for a full year in the most recent 12 months, we’ll count you as a self-employed borrower and let you use 12 months of bank statements to calculate your income,” Fisher said with palpable enthusiasm in describing the newly launched product. “You must be self-employed for at least one year – by providing supporting documents such as a business license, articles of incorporation, or a CPA letter – with proof that you’ve been self-employed for at least a year, then we’ll use 12 months of banks statements for income.”
There will still be a verification process, Fisher suggested, but not as traditionally stringent: “We will consider your previous year’s W2 and make sure you’re in the same industry, but you own the company now. And we need to see you’re financially doing as well, if not better, as self-employed as opposed to when you were an employee. If you can show that – you’ve been employed for at least 12 months – you can now do a loan with LoanStream.”
Given economic challenges exacerbated by inflation and ever-rising rates, Fisher predicted the nascent product’s success: “We think it’s going to be a big hit in the market,” he said. “There’s a lot of borrowers who can benefit from this who have more than enough reserves and assets and their businesses have been successful. We think we have a solid niche in the market now, and this segment of borrowers are going to have access to capital to find homes and grow their wealth. Brokers are going to have another product to talk about with their realtors.”
According to the Pew Research Center, some 16 million of workers in the US identified as self-employed as of 2021. They work for profit or fees in their own enterprises, according to the research center, and are a representation of America’s small business owners. Many also create jobs for other workers, according to research – on the order of about 30 million in recent years. What’s more, the research center reports the self-employed ranks are back to pre-COVID levels after having seen a drop of 14.2% in the second quarter of 2020. The number of self-employed workers actively at work rebounded strongly in the economic recovery, increasing by 17.6% from the second quarter of 2020 to the second quarter of 2021, according to the Pew Research Center.
Fisher labeled the segment as representing a “very strong pipeline” of borrowers – not just of late, but historically speaking. And yet, he laments not having been able to provide financing for many of them in the past given the outdated self-imposed two-year proof requirement determining self-employment.
“Not anymore,” he said. “With this program, we’ve identified enough of these borrowers who are perfectly fine and meet the criteria as far as making the payment and the other criteria we’re going to put forward on this. And that’s going to be a fantastic opportunity for brokers and a great product.”
