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There are different options for self-employed borrowers to consider as they begin the process of getting qualified for a mortgage loan.
Homebuyers requiring financing are asked to provide extensive documentation regarding their employment, income, and assets. Ever since the "Mortgage Meltdown" occurred from 2007-2009, the mortgage industry has been looking at these documents more thoroughly and critically. A loan officer today will often compare his or her job to that of a private detective.
In most cases, a homebuyer's income and assets are easily calculated and documented, however self-employed borrowers are faced with additional scrutiny that can often result in a lower "qualifying income" than these borrowers might expect.
The sub-prime mortgage era presented alternatives for self-employed buyers. There were "Stated Income," "No-Doc," "No Income-No Asset" and other variations that allowed buyers to avoid the more strict conventional underwriting guidelines that applied to self-employed borrowers. We're just now starting to see some alternatives returning to the market, but today borrowers are asked to put down more money and pay a higher rate whereas in the sub-prime era there was very little premium added for these special loan products.
Borrowers are considered self-employed if they own 25% or more interest in a business or if they are 1099 employees who file a Schedule C. Self-employed borrowers are required to have a minimum of two years consecutive self-employment in the same business and geographic area.
Typically, two years of income tax returns are required for analysis, however automated underwriting findings may allow for review of just one year's returns.
Business income is averaged over a two-year period using Federal Tax Returns. In the case of declining income, significant compensating factors must exist to consider the income in the qualifying ratios. A significant decline in income is not acceptable, even if the current income and debt ratios meet agency guidelines.
The type of business (sole proprietorship, partnership, or corporation) determines how the income is calculated. The qualifying income will be much closer to the Net Income than it will be to the gross earnings, in most instances. This is where self-employed buyers can find themselves with less buying power than expected.
The one "tip" I could offer self-employed borrowers is that they should be conscious of the impact aggressive business deductions and tax write-offs can have on their qualifying income when it comes time to buy. While that may result in higher income taxes, it could also result in qualifying for their dream home.
And, of course, it is always best to get pre-qualified with a reputable lender before beginning your home search.
..."You've got a Friend in Real Estate"
Jarod Tanksley 615.403.8265
Brentview Realty 615.373.2814
Image courtesy of stockimages at FreeDigitalPhotos.net
The signs are everywhere! The amount of daylight is changing with darkness creeping in as we finish dinner, the leaves are falling and it is now sweater and soup weather. Fall is upon us and along with that comes the regular use of heat in our homes. Did you turn off all the ceiling fans in your home when you switched over to heat side of the thermostat?
If you are among those who turn off the ceiling fans in the winter, your home may not be as comfortable as it could be and depending on the ceiling height, you could actually be spending more on your heating bill than you need to keep your living space cozy through the winter months.
In the summer, ceiling fans should turn counterclockwise which helps move air downward creating a slight "wind chill" effect. In the winter when you are heating your home, the heat naturally rises and cold air sinks. If you reverse the direction of the fans to clockwise the fan blades will move the cold air upwards pushing the warm air downward back into the living space. By running your ceiling fans on the lowest setting in the winter it can gently circulate the heated air and possibly allow you to turn down the thermostat a few degrees but not notice any difference in comfort level.
Most ceiling fans have a small switch near the light fixture above the blades to change the direction. To change the fan direction, turn the fan off and let it stop spinning. Move the switch and then turn the fan back on. And just one friendly housekeeping note to add about fan reversal is to take the opportunity while the fans are off to clean the blades before reversing the direction so you don't have tiny dust bunnies flying all over your rooms!
...."You've Got A Friend in Real Estate"....
Jarod Tanksley 615.403.8265
Brentview Realty 615.373.2814
