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Self Employed Mortgage Loan - Getting a Mortgage When You're
Self Employed
Being self employed has many benefits. When you are
self-employed, you can write off all of your deductions on your
taxes. You have the potential to make more income than someone
who is employed by someone else. You have the freedom to be your
own boss. One of the few times when being self employed has some
drawbacks is when you go to get financing for a home or a major
purchase. But, here are some things to know that can help you
make the mortgage loan process run smoothly when you are self
employed.
When verifying income - In general, lenders want to see at
least 2 years of self employment history, sometimes they want to
see 3 years. They will want to see this history verified in tax
returns, usually. Sometimes the lenders will figure your income
as being the average income you claimed on your income taxes as
profit, not your gross business income. Sometimes the lender will
figure your income as the lowest of the two years and sometimes
as the highest of the two years. Talk to your mortgage broker or
lender and find out which way they verify. Sometimes lenders will
figure a portion of your write-offs or deductions back into your
income. There are ideas of other ways that a lender may be able
to verify your income and if you are self employed it will help
you to be able to show a more of your income.
A. Use bank statements as proof of income - Find a lender who
will accept 1-2 years of bank statements as proof of income. It
is becoming more common nowadays for lenders to verify your
income this way. This way usually works better in proving income
than going off of your tax returns, because you can usually prove
a lot more cash flow than tax returns will show. On your tax
returns you usually subtract each and every business expense
before you claim any profit. When using bank statements, you are
still proving income, this does not put as much emphasis on your
credit score or down payment as the stated income or no doc loan
will.
B. Do a stated income or no doc loan - These types of loans
are done all of the time, where you need no proof of income, you
only state on a form what your income is, and you do not need to
verify it. This can help if you are self employed and want to
state your income as it is and not worry about having the lender
average out your income from the last two years instead. Make
sure you are accurate in stating your income, because the lender
may be able to obtain past taxes from the IRS to confirm it. When
you do a stated income loan, this will put more emphasis on your
down payment or credit score. So, you will usually need one of
these factors to be strong if you want to go this route. Most of
the time when you do a stated income or no doc loan, you will be
charged a slightly higher interest rate because of the extra risk
the lenders carries.
C. Put together a profit & loss statement stating
accurately stating your profits and expenses from the last two
years. This can be a time consuming project, but it can sometimes
be used as income verification for a lender. It is more usable if
you have had it signed or verified by your accountant.
There are many ways that lenders can work with you if you are
self employed. There are many programs available to help you and
if you have a down payment or decent credit, you are almost
guaranteed to be able to get approved somewhere. To see our list
of recommended lenders that would be able to help you, visit
here: Recommended
Mortgage Loan Companies Online or here Recommended
Bad Credit Mortgage Loan Companies Online
Written by Carrie Reeder, Owner of ABC Loan Guide. Carrie's
website is an informational mortgage loan website. Her website
has articles and a list of recommended mortgage lenders for many
different types of mortgage loans.
 MORE RESOURCES updated Thu. February / 09 / 2012
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