Andrew And Associates

The Best Way to Get a Mortgage
if You Are Self-Employed

(Note: Please Bookmark this Page for Immediate Future Access)

If you’re self-employed, getting a loan can be a little more challenging. It takes a lot of time, energy and patience. Simply stated, mortgage underwriters require more information for a self-employed person to qualify for a loan. You need to gain as much knowledge as you can about the mortgage loan process. This will help you to be more successful in your efforts to secure a mortgage loan.

Mortgage loans are based on the guidelines set up by three major organizations: (1) the Federal National Mortgage Association (Fannie Mae), (2) the Veterans Administration (VA) and (3) The Federal Housing Administration (FHA). All three of these organizations have similar underwriting guidelines for those that are self-employed. In addition, there are some institutions that have established non-standard guidelines to help individuals that do not fit the guidelines of these three organizations.

When applying for a loan, the self-employed will normally have to provide the following information:

1. At least two years of self-employment.
2. Documentation to verify you own at least 25 percent of the business.
3. An average income for at least two years. This reduces the fluctuations common to self-employment.
4. A forecast of the economic outlook for your business.
5. Proof of no significant declines in income over the period analyzed.

Regardless of your type of employment, lenders want to know if you have enough income to pay for a mortgage and are willing to pay all the debts recorded on a credit report. Although those who are self-employed are evaluated using the same basic guidelines (of those that receive a salary), the methods used to analyze income is different.

For individuals that receive a regular salary, lenders use gross salary to help them qualify. However, for the self-employed, this method doesn’t work. A self-employed business must be supported by the gross income to the business and the income to the owner(s). Therefore, a careful analysis of the federal income tax returns and schedules are used to determine the net income to the owner.

The strength and potential growth of a business is also taken into account in determining how well the self-employed individual may meet his/her ongoing payments. The length of time a person is self-employed and their overall experience is also considered. Because a self-employed loan is more subjective than a salaried individual, a careful narrative should be written to accompany the documentation for the loan. This narrative should help verify the income statement of the self-employed.

Today, there are several new types of loan programs available to the self-employed. Lenders are making an effort to provide the lowest rates and smallest down payments required for a loan. In addition, they are making strides in reducing the amount of documentation required to obtain a loan. These new programs are available for first-time buyers, as well as move-up buyers and investors regardless of their type of employment.

Tax write-offs are a common problem with the self-employed borrowers. This tends to reduce their income too much. Lenders want to know if the borrower has enough money to pay the mortgage as well as all other debt obligations. Fortunately, many lenders use a common sense approach to analyzing the tax information for the self-employed.

If you are a brand new self-employed borrower, lenders take a different approach. They will verify you previous employment history, your skills, length of employment, etc.  They want to establish a good financial history and then determine if your move to a self-employed business is a wise and potentially profitable move.

If you’ve been self-employed for several years and have recently had a bad year, that may not disqualify you from getting a loan. Often a bad year may be the result of a death, divorce or medical condition. As long as the business has been successful in the past, you have a good chance to qualify for a mortgage loan.

When you are self-employed, you must be willing to take the time to work with your real estate agent and loan officer to get the best help for your specific situation. Remember, they will carefully look over your tax returns. It may take a little longer that a typical loan, but the final result will be worth it when you are able to that mortgage loan for your new home.

Choose your agent wisely. Working with a full-time professional real estate agent is a must. Ask questions of your agent.  Find out how knowledgeable he or she is about houses currently for sale in your price range and also of houses that have recently sold.  Can your agent recommend a good lender that has the reputation of excellent customer service and low rates?  Does your agent ask questions of you to have a full understanding of what you are looking for to help you get the most home for the money?

Do you have questions or need advice you can count on or just want to discuss this further?

Don’t waste any more time; pick up the phone and call me now!  I’m here to help!

I offer a five star guarantee. I appreciate your business, loyalty, trust and referrals. My goal is to provide the very best counsel and advice to meet your real estate needs. If I can assist you, a relative, friend or co-worker, please give me a call. I look forward to the opportunity to serve you.

For prompt, courteous, professional service, call Larry Andrew: