New federal funds are on the way to New York State to assist homeowners at risk of foreclosure -- and HUD’s announcement of the program specifies that the self-employed will be eligible along with wage and salaried workers.
This could be good news for Long Island, where the U.S. Census Bureau estimates 74,000 workers are self-employed -- but it won’t be easy. Lenders and government programs have adopted stricter standards for proving income -- standards that are notoriously tricky for this segment to meet.
In the past, the self-employed and small business owners could get a loan without income documentation. But without the handy pay stubs the salaried set can provide, the self-employed often are ill-equipped for the new rules.
“They’d get stated-income or no-doc loans in the first place, but now they’re being asked to document it,” explains Joan LaFemina, manager of homeowner services Community Development Corp., a HUD-certified housing agency. “A lot of business owners don’t realize they should document income, such as paying themselves a salary. Often they put the money right back into the business,” she says.
The new program, scheduled to roll out in December, will allow borrowers who can prove eligibility to apply for a HUD “bridge loan” -- a zero-interest, deferred payment loan of up to $50,000 to help pay their mortgage and associated costs for up to 24 months. The program is for borrowers who were previously able to afford their payments, but have had a 15 percent income reduction and have fallen three months behind on the mortgage for their principal residence. The application process will include a formula to determine the likelihood that the borrower will be able to afford the payments again without assistance in the future.
To prove all that, careless bookkeeping and cash transactions won’t do. “They have to have an accountant be able to prove their income, so it must have been deposited in the bank,” says LaFemina. “It’s challenging if they merge personal and business. They don’t go through the steps of creating a corporation or having a separate business bank account.”
To increase the odds of qualifying for government assistance, “They have to treat it as a business. They can’t just merge it with their personal life,” LaFemina says.