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Some 14.4 million Americans work for themselves, according to the Bureau of Labor Statistics, in jobs that range from agriculture to medicine. Most self-employed workers seek to reduce their tax liability by deducting their expenses from their gross income to show a lower net income. However, this strategy can throw up roadblocks when it comes to applying for a mortgage loan, as lenders and underwriters try to determine a borrower’s true net income and ability to repay the loan.
Correctly evaluating the income of self-employed borrowers is a challenge for mortgage lenders and underwriters, who are under more regulatory pressure than ever to make sure loans are compliant. To meet the need for a simple, accurate process, MGIC has developed its editable Cash Flow Worksheets, which guide users through an easy-to-use form with line-by-line instructions.
“When a self-employed borrower is looking to obtain a mortgage loan, it can be difficult to calculate their qualifying income, and at the same time, meet acceptable industry standards for calculating cash flow,” said Shelley Callaghan, senior marketing manager at MGIC. “Using our Cash Flow Worksheets makes it easier to get the appropriate answer, and determine if the loan fits the criteria.”
MGIC has forms for both the Adjusted Gross Income (AGI) method and the Schedule Analysis Method (SAM). Borrower information is entered directly into the forms, which feature built-in calculators, and each line item in the worksheets is linked to MGIC’s resource manual — Evaluating the Self-Employed Borrower — for additional guidance on the specific area of income/loss.
“One of the things that distinguishes MGIC is that we update our product annually, so the forms are kept up-to-date based on the most recent tax changes and industry standards,” Callaghan said. “We tend to be the go-to source for this information because of the effort we put in to keeping it current.”
MGIC also offers online training for evaluating self-employed income with courses on both basic and advanced levels. “Some people use the courses as a refresher to learn about recent changes, while others use the program to learn the basics,” Callaghan said.
This ongoing training and the Cash Flow Worksheets are both crucial for mortgage professionals trying to keep up with the number of changes bombarding the industry while still writing as many loans as possible, Callaghan said. “We hear from many industry professionals on how helpful MGIC’s AGI and SAM worksheets are in guiding them through either simple or complex tax returns.”
Amid tight origination standards, it’s more important than ever that lenders find ways to help borrowers get the mortgage that’s right for them. Using MGIC worksheets to calculate the appropriate income of self-employed borrowers is an efficient, compliant part of making a borrower’s dream a reality.