HOW TO GET A MORTGAGE
WHEN YOU'RE SELF-EMPLOYED By Brian Decker
Applying for a mortgage can be a daunting task for anyone, especially first-time homebuyers, and when you are self-employed, the task can seem even more challenging. H o w e v e r , w it h m o r e in d iv id u a l s b e i n g s e l f - e m p l oye d or e a r n i n g i n c o m e t h r o u g h a l t e r n at i v e m e an s , t h e re ar e p l e n t y o f w a y s t o a p p l y a n d b e ap p r ov e d f or a m ort g ag e .
INCOME DOCUMENTATION
Because you won’t be able to fill out certain forms associated with traditional employment and conventional mortgages, you will need to provide a number of documents pertaining to your income. Be prepared to provide tax return records for yourself and your business, and a business license or CPA letter. Now, most people who are self-employed will try to write off as much as humanly possible to avoid an IRS tax bill. If your qualifying income falls short of the amount required for the new home you are looking to purchase there are alternative options. It is always important to remember that any alternative program options will have slightly higher interest rates, require typically a minimum of 10% to 15% down and require an above average credit rating.
CREDIT Naturally, your credit will play a role in determining your mortgage eligibility when you are self-employed. For self-employed individuals, income can be considered a potential issue when it comes to securing a mortgage, so a high credit score can work in your favor. Monitoring your credit is substantially more important when you are self-employed, and striving for a score above 700 will be helpful. Ideally the best financing is found at 740 or higher.
DOWN PAYMENT Self-employed individuals may have a disadvantage when it comes to applying for mortgages simply because of the way the application and approval processes work, but they do have an advantage when it comes to securing the deal. Unlike most borrowers, many selfemployed individuals are able to make larger down payments; this demonstrates their fiscal responsibility as well as their financial capability, making lenders more likely to approve their mortgage. Down payment assistance program are available but only for those whose tax returns provide enough qualifying income. If someone needs alternative income documentation then 10% down is the most aggressive program available.
MORTGAGE OPTIONS Conventional mortgages are not accessible to some individuals who are self-employed. The two primary loans for self-employed individuals are Bank Statement Loans and Stated Income/Verified Asset (SIVA) Mortgages. A bank statement mortgage loan provides a fantastic alternative to nearly all self employed individuals. This program adds up all the customer revenue deposits/wires into a business checking account over the course of 12 or 24 months. Then it applies a certain expense factor to this total sum of revenue deposits (25% to 50% expense factor pending on the industry). The result of this calculation is the total qualifying income to be used to in the new home purchase. This program requires the lowest down payment percentage of any alternative mortgage program at just 10% down.
For individuals where their business is either a cash business or the deposits do not provide enough income to qualify there is the most lenient alternative; the SIVA loan. This program allows the borrower to STATE their monthly income and as long as it is within the scope of the industry, this is the income the underwriter will accept. Now this program does require a larger down payment due to the riskier nature of this product. Usually the minimum down payment is 25% for a primary home purchase or 30% for investment properties.
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