Real Estate Blog

Today I've asked Todd Wiggins of First Community Mortgage to address the special circumstances that self-employed borrowers should 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.

I'd be happy to help you with your mortgage needs.

Todd Wiggins
First Community Mortgage
750 Old Hickory Blvd, Bldg One, Ste 262
Brentwood, TN 37027
615-554-1983 mobile
615-938-7499 direct
615-620-4705 main
615-620-4706 fax
www.thelenderofchoice.com<http://www.thelenderofchoice.com/team/todd-wiggins.php>

Image courtesy of stockimages at FreeDigitalPhotos.net

If you have the luxury of time before you make a home purchase, I highly suggest that you use that time to research the neighborhoods that you think would make a great fit for you and your family. This will allow you to narrow down your search area when it comes time to get serious about buying, and it will instill confidence in your purchase decision as well.

The holidays are a fun time to drive around and look at lights and other decorations anyway, so make those trips out multi-purpose by observing the comings and goings in your favorite neighborhoods. This time of year will also give you a head's up if there is a real-life Clark Griswold situation going on during the holidays on your favorite street! Excessive decorations might be an annoyance for some, but for others, you might get a kick out of having a neighbor with that much holiday spirit, especially if you have kids.

Here are some other important ways you can do the best research:

- Drive and/or walk the neighborhood. Do this at different times of the day to get a feel for the people, traffic, and other activities. Are people out and about, or do they keep to themselves? Do the streets get backed up during rush hours?

- Drive/ride your would-be commute. Pick a morning and afternoon to take your route to and from work from the prospective neighborhood. Is this something you can live with day-to-day or would it add a lot of extra stress to your life?

- Talk to the neighbors. Ask about local parks, restaurants, and other areas of interest. Ask them their opinions of the neighborhood. Is there an HOA? If so, what are the costs, pros and cons?

- Research the zoned schools. Even if you don't have children, this could be an important factor if you should ever try to sell this house in the future. Homes sell better in great school districts. If you do have kids, talk to other families with kids in those schools or go on a tour of the school. For a score report in the state of Tennessee, click here.

Also, the following suggestions allow you to use your senses to get a complete picture of the prospective community:

Sights:

- Remember your first impression. What do you notice first about the neighborhood? Do the streets have curb appeal? Are the houses well-maintained? Do the shops and restaurants look hip and inviting? You'll want to feel good about where you call home and impress buyers when you're ready to move on.

- Look for warning signs. Be on the lookout for signs that the neighborhood is in trouble. Do you see abandoned buildings or vandalism? Are there a lot of "For Sale" signs or rentals? If the community goes downhill, so does your house's value.

Sounds:

- Stop and listen. Bird and nature sounds are generally pleasant, but what about noise from the highway, airport, hospital, train tracks or nearby clubs and bars? It's not very relaxing to listen to trains screech by during your morning coffee-especially not every morning.

There are many great neighborhoods in the Middle Tennessee area.

Contact me and I'll help you find the right fit for you and your family!

Jarod Tanksley
jarod@realtracs.com

www.BrentwoodandBeyond.com

615-669-8265