| Recent strides in mortgage products have made it less difficult to find affordable mortgage loans for the self-employed. However, lenders still want safeguards in place since their risk with a self-employed home loan applicant is potentially increased. It is commonly accepted that self-employed loan applicants are more likely to have unpredictable incomes, or be affected by economic slumps, rising operating expenses, or market trends. That's why lenders typically want a business track record of at least two years of increasing income for self-employed home loan applicants. Qualifying for Self-Employed Home LoansIn most cases, qualifying for home loans for the self-employed is contingent on your net income (listed on Schedule C of the tax return). If you capitalize on deductions on your Schedule C, resulting in low net income, it could get in the way of obtaining the self-employed home loan you're looking for. Furthermore, if your income last year was 15% or more below the previous year's, you'll need to provide a good explanation. Your income must be documented by tax returns, not profit or loss statements.Swing a Self-Employed Home Loan Application in Your Favor
For the self-employed, home loan documentation that is missing or sketchy may come with other balancing factors that could still make you an acceptable risk. Here are a few loan solutions that might swing a self-employed home loan application in your favor: Special Case Loan
These loans are made on a case-by-case basis where risk/reward warrants (for example, a professional with less than one year of self-employment), and are not common. These require an extensive paper trail of income, expenses, bank statements and invoices to verify the capability of the business. Quick Qualifier / Stated Income Loan
This is useful if you have a low net income on Schedule C but have excellent credit and liquid assets. This type of self-employed loan makes it possible for you to state your income but not document it, which is why your lender will demand a combination of very good credit and liquid assets. 'No Stated Income' / 'No Stated Employment' Loan
For this you'll need good credit without strict reserve requirements. This self-employed home loan is designed for people whose income and/or employment can't be documented. It usually has a rate about one percent higher than a fully documented loan. Examples include buyers with family trust funds or people who have recently moved to the United States. Special Considerations of Loans for the Self-Employed
No matter what type of mortgage you're after, there are some general procedures to keep in mind when applying for a mortgage as a self-employed loan borrower. For starters, if you are a W2 employee and own more than 20 percent of the company you work for, you may need to present the business tax returns if the entity is a corporation (and partnership returns if it's a partnership). If you're self-employed and present a fully documented loan with tax returns, you may be asked to sign a form allowing the lender to obtain a copy of the tax returns you presented to the IRS. If what you provided the lender is not what you gave the IRS, you will have 30 days to pay off the loan or legal recourse may be taken. Probably the most important piece of advice is to pay attention to your bank statements. If they show direct deposit of your net pay that is inconsistent with your stated gross income, you may have a problem convincing the lender otherwise. While inventive loan programs have their proponents, nothing is a substitute for a knowledgeable mortgage lender. Make sure to choose the one with a history of successful originating loans for self-employed borrowers.
|