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Hard times for the self-employed

A few years back, there was a mortgage program that was called a “No Doc” or “No income verification” program, which made it easier for non-salaried workers to qualify for home loans by not forcing them to verify their income. This program was a great for someone that had a good down payment or sizeable equity for a refinance, but didn’t show a lot of income.

Unfortunately, this program was being used by W-2 employees to qualify for larger mortgages than they could afford. So they would state that they made more money than they actually did, and “qualify” for larger mortgages that they later were NOT able to pay.

Because of these abuses, the program was discontinued in April 2008. . Unfortunately, countless honest self-employed borrowers are now suffering. Let me give you an example.

I recently had a customer who I regretfully had to tell that he would not qualify for a mortgage. His home was worth approximately $700K , and he had paid it down to $100K, giving him $600K in equity. He had sizeable reserves, but because he didn’t show enough income on his tax returns, he did not qualify.

The same day, I was able to achieve approval for borrower who had purchased a property with 3.5 precent down and had little remaining after closing but was showing enough income. What’s wrong with this picture?

Today’s criteria, is more reliant on income than it is on assets and that could be a big reason that our real estate market is still hurting.

Feel free to e-mail me with questions at ron@ronmortgage.com. For more about my company, visit www.ronmortgage.com.

About Ron Ricchio

Renato (Ron) Ricchio is president of Chicagoland Home Mortgage. He grew up in Westchester and attended St. Joseph High School and DePaul University, taking a job as a loan officer in the mortgage industry soon after graduating with a bachelor’s in finance in 1991. He started his own company in 2001, which he operates today. He has been ranked in the top 150 loan originators in 2010 and 2011 by Origination News. Ron is happily married with three beautiful children. A board member of San Francesco Di Paola Society and the founder of Ricchio Family Toy Drive for Lurie’s Children’s Hospital, he enjoys cooking and spending time with family and friends.