Current conventional lending is simple, easy to understand and very limited. Outside FHA mortgages, 700+ FICO scores, 20% down and W2 employment are the minimum bar to entry to a 15 or 30-year mortgage. It doesn’t matter if you have money, a high net worth, or a six figure 1099 income. That criterion was forged in stone to rebuild the housing and credit markets and create financial stability. But along the way it eliminated those whom have wealth and the self employed.
The Wealthy, But Illiquid: It’s shocking that a wealthy individual with net worth in the millions can’t get a mortgage because their assets are illiquid: real estate, metals and art. Their monies are tied up in mid to long-term alternative investments that can’t be liquidated because of the tax consequences and the contractual exit provisions. Their FICO scores are north of 800, but their own bank can’t lend them a dime for their own home. They live in gated communities, pay huge property taxes and HOA fees, but can’t secure a mortgage for a couple of million dollars.
The Wealthy, The Liquid, But No Earned Income: It’s astonishing that wealthy people with liquid assets, but no earned income cannot secure a mortgage. If they want to buy a home, they have to pay cash. They don’t work for anyone. They don’t need to, but purchasing a mortgage for them is a meat grinder experience. And their problems don’t end there; securing an equity line of credit for homes free and clear is just as difficult.
The Self-Employed: It’s simply amazing that American entrepreneurs are treated like the unemployed. The small business market is 70% of corporate America and a significant percentage of them are self-employed. It doesn’t seem to matter that the self-employed pay twice the FICA, FUTA, SUTA taxes as a W2 employee, it matters that they’re not a W2 employee. A W2 manager at a fast food restaurant can secure a mortgage, but a wealthy self-employed individual has trouble meeting the requirements.