Our client went under contract to purchase a new home in West Palm Beach, Florida for $6.6 million.
As CEO of his family-owned company that was founded in the 1950s, he had a strong credit score and a lot of liquid assets in bank accounts, but he faced 2 challenges regarding his debt-to-income ratio (DTI).
First, his tax returns for the past 2 years showed relatively low income because of large business deductions, a common practice for self-employed individuals. By using the income figures from his tax returns, his DTI was artificially high and did not reflect his true monthly cash flow.
Second, he already owned two properties with mortgages on them – his current primary residence in Florida and a second home in Southhampton, New York. Although he had listed his Florida home for sale, he had no offers to buy. For his house in the Hamptons, he did not want to sell or refinance that property. Therefore, the carrying costs of holding those two properties further inflated his DTI.
Before he came to us, two private banks declined his application due to his high DTI. They refused to issue a conditional approval. He was at risk of losing his earnest money deposit of $660,000.
In short, traditional lenders considered his file too risky.
Instead of viewing the DTI issue as a barrier, we viewed it as simply a documentation gap. The borrower’s business bank statements told a different story than his tax returns.
Instead of tax returns, we qualified the borrower using 12 months of business bank statements to calculate his average gross receipts. We paired that with a CPA letter and profit-and-loss statement.
The lender performed a manual super-jumbo underwrite of the business bank statements and concluded that his monthly income was much higher than what was reflected on his tax returns.
When factoring in his true income as shown through his bank statements, his final DTI was calculated at 14.85%, strongly indicating his ability to repay the loan.
The $4.29M purchase loan funded successfully, preserving the borrower’s earnest money and removing the pressure to sell his Hamptons home or his former Florida primary residence.
The on-time closing restored confidence for the borrower, his realtor, and the seller.
Our client and his family are now enjoying their new home, which is larger than their old home and closer to their children’s school.
This case shows the importance of finding a super jumbo lender that offers alternative income documentation loan programs, especially for high-net-worth self-employed borrowers with complex tax returns.
DAK Mortgage is a licensed mortgage broker that can navigate you through the process of finding the right loan for your needs.
