Podcast Interview—Your Lot and Parcel
Securing a Mortgage for The Self-Employed Is Possible
Alejandro Szita is a licensed mortgage broker who specializes in serving business owners, artists, and entrepreneurs in CA and FL. In this episode, he explains why it is possible for the self-employed to secure a mortgage. He has a track record of successfully assisting clients who were previously rejected for a mortgage.
If you are having trouble getting the mortgage you need—even though you know you could make the payments—do not despair.
Many of Prosperity Lending’s clients have faced the same problem, having been denied a mortgage they knew they could afford or getting lost in an application process that was getting them nowhere. This commonly happens to business owners and other self-employed professionals. Due to the semi-automated rules and processes of most lenders, they routinely see denials of borrowers who are perfectly creditworthy!
Podcast Transcription:
Intro: Welcome to Your Lot and Parcel Podcast. Our mission is to emphasize the importance of preserving historic landmarks for future generations, mental health, physical wellbeing, and a safe family home environment. We value your monetary support. Here's your host, Benjamin F. Diaz.
Benjamin Diaz: Thank you for joining me. Did you know there are about 50 million self-employed individuals in this country? And this creates a real need for someone like my guest to secure mortgage loans for those that are not in the mainstream, economically speaking? My guest has been doing real estate loans since 2005, and specializes in serving the business owner, artists and self-employed professionals. I myself have been involved in the real estate industry for at least 40 years, and I can tell you right now that my guest is well seasoned in his field of discipline. Let's invite him to our show now. Out of Irvine, California, and the founder of Prosperity Lending. Here he is, Alejandro Szita. There are many challenges when you are self-employed, especially when you want to obtain a mortgage, but it doesn't have to be that difficult. And I'm glad to have Alejandro on the show today with us to explain that it doesn't have to be difficult whatsoever. So, before we get into our discussion, Alejandro, tell us about yourself and your field of discipline, if you would.
Alejandro Szita: Benjamin, thank you. It's a pleasure to meet you. Thank you for giving me a voice to your audience. I come from Chile, from the country of Chile, and my field of expertise is mortgages. Mortgages, but from a financial planning point of view. I have been in finances for many years, like 40 plus years, doing different things in real estate. I have been a listing agent, commercial, and residential. I have worked with buyers, you know, with them. I have worked for syndication funds that raised money for real estate projects. But I decided to concentrate on lending because lending is my niche.
Benjamin Diaz: There you go.
Alejandro Szita: So I've been around this field for a long time.
Benjamin Diaz: Well that's good to know. I'm sure, you know, as time goes on, we do pick up every, and I know every mortgage, like myself, and we're both pretty much in the same industry here. And every, every applicant is just a little different, you know? So, let me ask you, Alejandro, how difficult is it to get a mortgage when you are self-employed?
Alejandro Szita: If you just pick up the phone, contact the mortgage broker for the first time to buy a house that you fell in love with, it will be a very difficult process. It will be a very difficult process because the mortgage industry is geared to a specific type of loan, and this is the specific type of loan that is advertised, that you see on the websites, that you see quotes for, that you see people on the radio talking about. But it's important to understand that this is a very specialized type of mortgage, which is actually, I would say, a special case of a loan that has been publicized as being the only loan. And that is the loan to the W2 employee. The W2 employee is a very special kind of borrower that is actually very different from most loans. But the lending industry has focused only on that person. So to the point that ninety or more percent of the loans are made for that person. So if you are not that person, it's gonna be very difficult. Not because you can't, not because you cannot do it, it's only because the industry is not geared for you.
Benjamin Diaz: Yes, I agree with you. I agree with you, you know. But like you, I'm also self-employed and, you know, W2 wage earners are fine, but you know, when you lose your job, the income becomes zero.
Alejandro Szita: Yes.
Benjamin Diaz: But self-employed, the perception is, well, I don't know if I wanna do that. But you see, it's more sustainable. It's all up to you what you're able to do as a self-employed individual as far as bringing in some income. So all my adult life, I've been self-employed, Alejandro, and I wouldn't change it at all. Looking back, I'm in my mid sixties already, Alejandro, so I don't have any regrets. So let me ask.
Alejandro Szita: It's the same with me.
Benjamin Diaz: There you go. Exactly. So what are the most essential elements then to qualify for a mortgage?
Alejandro Szita: I would say it is the income. Mortgage, it's basically you're leveraging your income for a payment. So before even worrying about your credit or anything you have to have an income that would allow you to support a mortgage. Case in point, if you're renting and you have been renting for two, three or four years, you should be able to get a mortgage. You should be able to get a mortgage for something very similar to what you are renting right now, maybe a little bit more, because in Southern California and in California, it's an exception in the sense that home prices are so high. But I would say as a rule of thumb, if you are paying between $2,000 to $3,000 a month right now in rent, you should be able to get, rule of thumb, between a $400,000 to a $500,000 home that you can buy.
Benjamin Diaz: Sure. Exactly. No, I agree with you. And income is very important, but you know, when you're self-employed, of course you gotta provide your profit and loss. You always look not at the gross, but at the net income, this is after expenses of your, what you do, whatever the discipline is. And they go by that, you know. But like myself and many others you know, they tend to write off everything. And like I mentioned earlier, if I could write off my shoelaces, I would save on paying taxes, you know. So that is really a two-edged sword. You know, you save money by paying taxes, but then it's hard to qualify for a mortgage. What would you say to someone like that?
Alejandro Szita: I would say that the good news about that is even though the industry is geared towards the W2 employee, there are like eight other methods of qualifying in addition to tax returns that a self-employed person can do. You know, if you have a flow of income even though on your taxes, you're not making any money, you can still qualify using that cash flow with bank statements. If you don't have bank statements, because one thing that you mentioned at the beginning of the interview was what happened to the person that is in between, actually, I have a borrower right now, that we are helping him buy a home and he's in between. Let me explain what I mean by that. He was a W2 employee for a company for 14 years. He's an asset manager, so he makes big money.
He decided to become independent. So he made that decision in March of this year. So as of March of this year, and now we are in September, he decided to become a 1099 employee for the same company, making the same money, actually a little bit more. Same job, same company, a little bit more income. He came to me and he didn't qualify for anything. He has the down payment, he has the income. So how come he doesn't qualify? It's because mortgages, and this is why they are frustrating, especially for self-employed individuals, mortgages are a collection of rules. About fifty or more percent of the mortgage is just rules. Some of those rules, sometimes they actually collide with each other and they are counterproductive. And you have a rule that says, do this, a rule that says do that. And they both collide.
Benjamin Diaz: Absolutely.
Alejandro Szita: So what we did is there is, so he doesn't qualify because he's not an employee anymore, and you have to be self-employed for at least two years. And since he became self-employed in March till now, it's only been a few months. We found a loan program, it's called, it's a community. It's a community mortgage. Community Mortgages are very, very difficult to get because the lender has to be certified by the US Treasury Department. And there are only a few lenders in the country that can do this. But we found the one in Newport Beach that can do this. So to make a long story short, the self-employed person who is technically unbankable, even though he's relatively wealthy and who doesn't qualify for anything, now he qualifies for this beautiful mortgage where all he has to do is show a sizable down payment, 20% or more, ideally 25% or more, and a credit score of at least 700. And then no questions asked on the income side, because it's a community mortgage. But for other people that are self-employed, what I see is that mostly, most of our clients, especially business people that have a business that have cash flow, they qualify using bank statements.
Alejandro Szita: And when I say bank statements, it could be personal bank statements, it could be business bank statements, or it could be both. Because some people channel their income on their personal bank, bank statements. But bank statements are not all, depending on your business, depending on what you do for a living. Like we had an artist who had very irregular income flows, but he had a very healthy account balance. Actually, he wanted to buy a condo in Los Angeles, and he already had all of the money for the property, sitting in his checking account. And you may wonder, wow, if he has all the money sitting in his checking account, how come he cannot qualify for a mortgage? But the answer is, remember that the mortgage is leveraging your income. Since his income is irregular, then we cannot use the income because the income will not qualify per the rules of the mortgage. However we can leverage the asset making into an income. Theoretically, there is a formula that allows you to do that, is one of the rules that allows you to do that. And then we were able to get him a mortgage. So there are like seven to eight methods like that in addition to tax returns to get someone qualified. But the key is that you have to have a profession, job, or activity, or business that does make some money.
Or even if it's irregular, even let's say, let's say it's a seasonal activity. Let's say you are a fisherman in Alaska, another one, another client that came to us, although we're not licensed in Alaska, so we just consulted him, and all his income is made seasonally. There are only two to three months where you get all your income and the rest of the year you don't have any income. That is still okay. But there has to be income. Because if there is no income, even if it's irregular, then we cannot do the loan.
Benjamin Diaz: Exactly. So what they do is you average it over the year. Whatever months of activity he had. So yeah, there's just different ways. Sometimes we get stuck in a rut, you know, just how mortgages do things. But, you know, I'll tell you what, a rut, it's only just a couple, a few feet away from a grave, you know, we don't do that, right? So yeah, we got to be creative. And so that's where you come in, you see. I have worked with self-employed individuals, you know, and there's a lot, there's other things you can look at in their profit and loss statements. You can add back the depreciation or one time costs that they, the expenditures, you know, that they will not do again back into the income. So there's different little things like that, you know, that will increase the income. So that's why it takes professionals like you to look at the whole picture, and see what route we're gonna take and make the thing happen for the customer. And you mentioned that at least 700 score, a mid score.
Alejandro Szita: Well in the case of that particular program, but usually, usually if you have at least 660, we can work. Now, even if you don't have 660, even though we are not a credit repair company, we don't advertise ourselves as a credit repair company and we don't charge for that, as part of our services, especially for self-employed people. We routinely work with credit issues and we routinely get between 50 to 100 points more. So if you come to us and you are at 620, chances are we can get you to 660 quickly. Ideally. Depending on the amount, the more expensive the loan is, the more we need to raise your score. Like I give you an example, if you're trying to buy a $3 million home, until you get 700, we won't do anything. So I just help you until we get 700, because if not, it's going to become prohibitively expensive. If you want to buy a $1 million home, we'll work with you until you hit 680. Why? Because you cannot get it for less. You can't, but you're going to be spending a fortune. If you want to buy a condo or a home that is $500,000, we'll try to get you to 660, 661 actually, because then you start to see rates decrease. We'll still try to get you to 680, because pretty much from 680 and above, you start to see reasonable rates. From 620 to 640, you're going to be paying a fortune. From 640 to 660, you're going to be paying maybe less from 660 to 680 less. And once you hit 680, now you start to be treated decently by the lenders.
Benjamin Diaz: Exactly. Oh, yeah. And of course, you always look at the mid score, you know, because you pull in all three bureaus and it's always the mid score. So, yeah. That's great. Are you able to kind of just, how would you say play with the scores if you, let's say we can pay this off?
Alejandro Szita: Yeah, yeah. We do that all the time. When we pull the score of the company that we use, the credit provider has different, like simulations. What if scenarios. They also have another AI tool, an artificial intelligence tool that we can press a couple of buttons and it will rearrange everything and tell us what is the optimal combination. But when the artificial intelligence tool hits a limit, this is when we switch to the what if simulation. And we can go manually trade by trade, bureau by bureau, and start like twisting, changing things, playing with the numbers a little here, a little there until we manually configure exactly what you have to pay. Sometimes it's not just a question of paying, sometimes you need to go and get a couple of credit cards, you know, and we have two credit unions that we send you to, to get those wonderful credit cards.
So it takes a little bit of work, it takes a little bit of patience, but most people, I would say within two to three months can see a substantial increase on their credit. And then we also teach them, you know, why is it like this? Because credit is not what people think. Credit doesn't measure success, doesn't measure your, your business savviness or anything like that. Credit, credit scores are just a very narrow debt management scoring invented by people with their own personal opinion of how you should manage your debt. That's, that's really what it is.
Benjamin Diaz: Yeah. It's arbitrary.
Alejandro Szita: It's people who wanted to make money on you. And they had a certain arbitrary thinking on what a good quote-unquote good, a debt manager would do. And they apply that criteria to you. And if you do that, they make money and they reward you with a higher score.
Benjamin Diaz: Yes, absolutely. Yeah. Yeah. It's funny how it works, but that's the real world today, you know? I mean, a guy can get a loan just based on his credit score. You know, I've dealt with individuals, you know, with over 800 credit scores. So, oh, everybody just falling down these lenders, you know, I wanna give you some money here, you know. That can't say and or do enough, you know, but oh, yeah. You gotta, you do have to guard your scores, especially if you're in business on your own, because it is a lifeline. And that'll keep you going, keep you moving forward.
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Benjamin Diaz: My guest and I, we are talking shop today in regard to securing mortgage loans for the entrepreneur, which does not have to be difficult whatsoever, providing you have someone to guide you through the process, and this is where a professional is needed. Incidentally, my guest offers free consultation and is licensed in other states other than in California. So reach out to him if you have a question, and you will find that link in the show notes. So here he is again, the founder of Prosperity Lending, Alejandro Szita. But Alejandro, what if I have been self-employed? You mentioned that the first scenario was that he didn't have quite two years. Anything else you might say on that, on being, not being self-employed for more than two years?
Alejandro Szita: Yes. One thing I want to mention is this. Usually you see advertisements like, oh, put only three and a half percent down in the FHA loan. Oh, do this, do that. It's important to understand that everything has a counterbalance. Like I give you an example. If you are going to have, if you're going to apply, or if we're going to find you a mortgage program where you don't have to show income, it means you don't have to show income because you have other compensating factors. In this case, the compensating factor will be a strong down payment, and it will be a credit score of around 700. So one thing for another, if you put a low down payment, this means your rate is gonna be high and your payment is going to be high, your mortgage insurance is gonna be high. So all of these things have to be in balance, you know, down payment, credit, rate, income, debts, all of those have a delicate balance in between.
If you say, well, I don't have any debts, that's a plus. If you have too many debts, that's a minus. But for every plus there is a minus, for every minus there is a plus. So all of these programs are tailor-made, but in order to get them or, in order to qualify for them, you need to have a compensating factor. I'll tell you something, most of our clients come to us not because they don't have any money, not because they don't have the down payment. They usually come to us because other lenders don't invest the necessary time to make them ready to qualify for a mortgage. Most of our clients do have the money. They do have successful businesses. And this looks like a contradiction, because if you have a successful business and you have the money, how come you cannot get a mortgage? And that's precisely what happens. And that, that is precisely why we exist, because we take those factors, we rearrange them in a way that the lender likes.
Benjamin Diaz: Yes. Very good. And I also saw, just to add also that let's say you have less than two years of being self-employed. However, the lender will look to see what you were doing previous to that, if it's the same field of work. You see, that's a plus for you because you already have the experience, you say. So sometimes you can get a loan for, if you've been self-employed for a year, six months, but you see you have some history of doing the same thing, you see, so that helps out. And by the way, it doesn't preclude us to get a, get someone with a W2 to come in and qualify with us as well, right?
Alejandro Szita: That is correct. You don't have to do this by yourself. If you have a spouse and the spouse is on the W2 income, we can count her income, we can use his or her income in order to qualify.
Benjamin Diaz: Exactly. No, that's, that's it just sometimes, you know, folks out there that get stuck on a certain you know thought, you know, and they just think, well, I can't do this. No, no. There's all kinds of ways to do it. Is it possible to qualify for a loan without tax returns?
Alejandro Szita: Yes. That's what we do all the time. I mean, we occasionally get a W2 employee, and that's great because our record is closing a loan in 11 business days, but that was only with the W2 employee. So, we service the W2 employee, but our niche, our specialty are business owners that cannot use their tax returns to qualify.
Benjamin Diaz: Very good. So of course, there's programs out there and products that you can show, 4 months, maybe 24 months in bank statements, you know.
Alejandro Szita: Yeah. We can go with as little as 12 months with bank statements.
Benjamin Diaz: So that's very helpful. So I know the self-employed, the lending industry for the self-employed is just, well, it's just an industry all along to itself because so many, so many demands for itself. Being self-employed, you know, versus the W2, but it is possible, it is conceivable to get a loan as well. You do commercial loans too, Alejandro?
Alejandro Szita: We do small balance commercial loans, meaning loans between $300,000 and $5 million on the commercial side, but we don't do the full fledged commercial loans. These are small balance commercial, meaning that they are commercial loans, but they are not the full fledged ones.
Benjamin Diaz: Okay. Very good. All right. So someone may be listening and thinking that well, I'm self-employed. I'm not sure if I have enough down payment. What, what would you say to someone that's thinking about that?
Alejandro Szita: Well, even though you can have a, for a conventional loan as little as 5% down, and you can get a loan with 5% down. As a rule of thumb, as a rule of thumb, I would say think about 10% down. Once you get to 10% down the road becomes a lot easier. Now, having said that, we can get you qualified with 5% down, and an FHA loan will allow you to go to three and a half. But like I said, once you start getting to the limit of the guideline, you start getting some trade offs, you know, in terms of higher price, higher rates, high, higher closing costs. So I would say to be conservative, to get the best of both worlds in terms of rates and everything else. And closing costs, I will say factor in about 10% for your down payment.
Now, 10% for what I would say a regular house, if you are going to buy a luxury property or a multimillion dollar property, the rules completely change. On a multimillion dollar property, you need to begin a 20% down. And it's from that point on, if you're going to buy a $5 million home, you need to put 35% down. If you're gonna buy a $10 million home, you need to put 50% down. So you see how it changes. But, but for most homes in Southern California, because in San Francisco they're even more expensive, but for most homes in Southern California, if you think about 10% down, you'll be on the safe side.
Benjamin Diaz: Very good. So of course, there's always commensurate to the risk, you know, so they look at like indicated the scale of the values of the property you're looking at, the income and credit. So it's, it's a commensurate risk, the lender's risk to see what they're able to do for you.
Alejandro Szita: Yeah. Also, if you're within the limits, you know, the actual conventional limit was raised to $715,000. And the high balance limit, I believe it was 970, is gonna go higher. So if you are within those limits, then there is a, your loan is not gonna be that expensive.
Benjamin Diaz: Yeah. Very good. Okay. I know we're talking, you know, I wanna encourage my audience if they have any questions, to reach out to you and sit down, and see what might be the best avenue to take on this. But let's say what if I just don't qualify for a mortgage at the moment? What can you do for me?
Alejandro Szita: I will put you on a, on a roadmap to qualify. I've never seen anyone taking more than a year. Let's say that there, there is no way you can qualify. You don't have the down payment, you don't have the credit. We will help you. We give you a roadmap, a detailed roadmap for you of what you need to do in order to get to the credit that you want, and then narrow down on your down payment. But the way we begin, you know, we are a little bit unconventional. We don't focus so much on the numbers, believe it or not, we focus on your goal. We've seen this over and over and over again. We work with you, or we work with the person until we really narrow down on the goal. Let's say his goal is a particular home in a particular neighborhood, then we send him to Zillow to look at it. We send him to open houses. You will go, hold on a second. He's not even qualified. You're sending him to houses. The answer is yes. And I will tell you why. Because when you focus on your goal, when you can see your goal, when you can touch your goal, believe it or not, I call it the universe, everything around us bends and gives you what you need. So once we get your goal, once you focus on your goal, we'll tell you, you know, this is how much you need the payment, the blah, blah, blah. But it's more of a roadmap to zero in on your goal, because as you zero in on your goal, everything around you, this is like, magic starts to happen in such a way that as time goes by and as you're focusing on your goal in a few months, you boom, you qualify.
Benjamin Diaz: Good, good deal. You know many along the way, I've met many entrepreneurial spirited men and women, and I admire people like that. Maybe because I'm biased, I don't know. I am. That's okay, I guess. But I enjoy people coming up with some great ideas and not only deciding to do something, but to execute it. That's where it's at. You execute what you want to do and follow through and, hey you know, three, five years later you're doing just, well, a lot of cash flow and you're taking care of your family, number one. So I admire that. So many are self-employed today Alejandro, and some may have some side hustles. You know, what, what would you say to someone that is, to encourage them, that may be contemplating and maybe thinking, well, I, I don't know. They have a big old question mark on top of their head, whether they qualify or not. What would you say to someone like that?
Alejandro Szita: I would say that, that it's like anything in life. When you focus on your goal and when you focus on your niche that you like, that you're good at, everything else starts to align in your life. And qualifying is part of it. If you have a hustle, like you said, and it's starting to work, this is what I've noticed with my clients and with myself. Once you find your niche, it starts to work. You don't have to put in a lot of effort. You have to work. I'm not saying that you don't have to work, but this is what I mean. Sometimes you undertake a project or, or let's say work and it's really hard. You work, you work, you put your best. And it's like, really pulling teeth, okay? At other times, when you find your niche, you put in the same quantity of work, but instead of pulling teeth, things work, things happen.
People call you, people buy. Ideas come to mind. People come to you. And that's what I mean. I mean, try, you know, I, I, when I, when I began in real estate back in 2005, I had to try many, many things. And do, you know, for 10 years I worked for my broker, who was my mentor. I was, I say jokingly, I was his quote-unquote slave because I did all the dirty work for him. You know, I didn't make much money. I paid my bills and I just survived. But I just did it for 10 years. So I tried every single angle, angle of real estate that I could to see which is the one that I could do well. Until I found lending. And it's the same for everything. So if you have a side job or a hustle, find the thing that if you put work for some reason, you get, you get stuff out of it, you start to get results out of it, and then focus on that.
And don't be afraid, just go into it. Because qualifying is just an aspect of your life. If your life is going sort of okay, you will qualify. If you have a lot of issues in your life, you will not qualify. You see, I'm not even talking about money. I'm talking about your life has to have a certain degree of order, has to have a certain degree of direction, because that influences whether or not you can qualify. It's not just a matter of numbers, it's not just a matter of income or credit. Because if your life is sort of, okay, it's sort of going, I mean, we all have issues, you know, but if on the whole you are doing sort of okay, and it's sort of like, all right, the credit, the income, the down payment, the ratios, all of that technical stuff, we can sort it out in a couple of months. That's not a problem. But if you have a lot of issues in your life, you don't have a focus, you don't have a niche, you don't know what to do, you, you're pulling teeth. It's a waste of time to work on the ratios and the credit and this and that. Because even if we do put that in the balance, that it should be, it will very promptly fall apart.
Benjamin Diaz: Yeah. Yeah.
Alejandro Szita: And then you're gonna find yourself with a house that you can't pay for. And there's nothing worse than that.
Benjamin Diaz: Exactly. Yeah. No, I agree with you. I mean wholeheartedly, I agree with you because you do have to have focus, you have to have direction. In fact, it reminds me, just yesterday I was talking to a good friend of mine, he's a contractor, a tile contractor. And I asked him, do you like your job? Do you like what you do? He says, no, I don't. I love what I do. He says to me, and that's what you wanna do, you know, is love the work and that will reflect in the quality of your work. And that is what will keep you moving forward. And this guy, this guy that I'm telling you about, he's a master worker. I mean, he has people waiting for him. Oh, probably over a year now, just to do, just wait for him. They were just waiting for him to do the job.
He has quite a great reputation, you know? So yeah, you got to find what you say, the niche and what your, your interests are and, and hone, make it better and better. And the word of mouth will help you out. You see it? In fact, I've done some advertising, all kinds of advertising, radio, newspapers, magazines. I've never done television, but word of mouth, that is the best advertisement a guy can have if you are in business for yourself. I'm telling you. So yeah, just work on getting things better and have, like you said, the focus. Alejandro, how can my audience contact you to learn more of what their options might be for acquiring a loan?
Alejandro Szita: The best way is going to our website, which is www.prosperity, like something prosperous, prosperitylending.us. So that's www.prosperitylending.us or send me an email. You can send me an email at info@prosperitylending.us.
Benjamin Diaz: Very good. Very good. Well, do you have a phone number?
Alejandro Szita: Yes. 310-294-9417. That's 310-294-9417.
Benjamin Diaz: Very good. And you're out of Irvine, California, right?
Alejandro Szita: That is correct.
Benjamin Diaz: You said you're not licensed in Alaska. Where are you licensed at?
Alejandro Szita: We are licensed in Florida. In this state, California. California, of course. And we are very soon going to be licensed in a bunch of southern states like Georgia, Alabama, and Tennessee as well.
Benjamin Diaz: There you go. Wow. Hey. Yeah. Keep moving forward, huh? Alejandro?
Alejandro Szita: Thank you.
Benjamin Diaz: That's very good. Well, you've been very gracious to be on the show with us today and I think what you had to say has been productive and very informative for those that may be contemplating a loan for a mortgage or a commercial. And I wanna thank you for coming on Your Lot and Parcel show and I wish you the very best, Alejandro.
Alejandro Szita: Thank you, Benjamin. Thank you for having me in your show and it was a pleasure talking to you.
