For individuals looking to obtain Mortgage Financing For Self-Employed, it can be difficult to get financing when you are ready to purchase a house. When you go to a bank or other traditional lender, they generally want you to have three things lined up: a credit score that meets their minimums, a down payment of at least 5 percent (but ideally 20 percent or more to avoid a high-ratio loan) and a track record of verifiable income. If you work for a company, this takes the form of pay stubs that show you receiving a regular salary that is high enough to make the mortgage payments each month. If you’re self-employed, though, you don’t have independent verification of your income, and your monthly income might vary widely, depending on what sort of business you have (and how your business is doing). So how can you get a mortgage if you are self-employed?
Mortgage Loans Self Employed
After the housing collapse of 2008 and 2009, lenders became much more conservative about the type of lending they would do. At first, lenders wouldn’t touch borrowers who didn’t have an ironclad income stream and a high enough credit score in addition to that down payment. However, as time has gone by and those who would be eligible for bank financing have signed up for their mortgage loans, there are fewer and fewer new borrowers coming in the door, so bank revenues are stagnating. Because interest rates have been low for several years and remain at historically low levels, there is no real reason for people to get into refinancing, so banks are starting to look more aggressively for new lenders, which means that the rules are starting to loosen a bit.
What this means for you as a self employed person is that the “stated income” mortgage is returning as a solution. Applicants who do not have pay stubs or tax returns that demonstrate their income are getting their mortgages approved more often, simply on the basis of their statement of income. So how can you prove your income? Bank statements, brokerage statements and other evidence of assets that you have on hand that could cover anywhere from six months to a year of payments, will all help your cause. Also, a stated income mortgage generally requires a higher down payment, so that the chance of default is lower.
Is there still a possibility of fraud? Of course. Borrowers could put together fraudulent bank statements, and they could spend those assets on other items, leaving them with insufficient funds to pay their mortgages. In Canada, many lenders still won’t offer these loans because they are still fairly risky. It is easier to put together a phony bank statement than it is to make a fake tax return. These “stated income” loans received a shady reputation before the housing collapse, because they were much more difficult to verify and they led to a number of defaults. However, lenders who are looking for new revenue streams are calling these “asset-based loans,” “portfolio programs,” “alternative documentation loans,” and “alternative-income verification loans.”
Mortgage lending for self-employed individuals
There is another source of lending for self-employed individuals, and that is the private lending market. The lenders in these types of loans range from individuals looking for a secure but slightly higher return on their RRSP funds to people who have a lot of money to invest but don’t want to spin the roulette wheel known as the stock market with all of their funds. If you are willing to put 30 or 40 percent down on a home purchase and don’t mind a term as short as a year or two before you refinance with a traditional loan, a private loan can get you into the home of your dreams as the owner instead of making you wait another year in your rent house, throwing rent down the drain. The reason why private lenders will work with self-employed borrowers is that they realize that people will pay their mortgage before they pay any of their other bills, because they do not want to lose their homes. Also, they can get a higher interest rate than the banks can, which is what makes their return more attractive.
Amansad Financial can refer you to lenders who offer stated income Self Employed Mortgage Loans and also has relationships with a number of individuals and organizations willing to act as a private lender. If you are self-employed and are looking for self employment mortgage approval, give one of our mortgage specialists a call today or apply online to see if you qualify.
Mortgage For the Self Employed in Canada
For those who are seeking Mortgage For Self Employed in Canada, gaining approval for a mortgage is often a difficult process. The income verification process is more complicated when you do not have an employer to verify your work history and ongoing income. Self employment often leads to irregular salary, not necessarily in the sense that it is unreliable but that it is not the same from one month to the next. For lenders, irregular income means that the likelihood of default is greater, which means that your likelihood of approval is less. If you are self employed qualifying for Mortgage is still possible, but it is much easier if you follow these steps.
Self employed mortgage requirements:
Mortgage for Self Employed People: First, claim as much income as you can on your taxes. It is tempting to claim a lower level of personal income to keep your tax liability low. However, when your lender looks at your tax return, it looks like you aren’t making as much money. This severely limits the amount you can qualify for with a mortgage. Instead, state all of your self-employment income on your tax return so that your income appears as robust as possible.
Second, unless your own business is an accounting firm, hire a wise bookkeeper and accountant. When you have well qualified people running your books, you will handle your financial business more efficiently. You can spend your time worrying about marketing your company, while your accountant is worrying about keeping your financials straight. You’ll thank your accountant when your carefully kept financial records impress your potential lender, convincing the bank that you are worthy of a mortgage.
It is also important to stay current on your personal income taxes, as well as any property taxes on other real estate. A lien from the taxing authorities on your existing property or on your self employment income is often the kiss of death when it comes to gaining approval from the bank for your Self Employed Mortgage Loan. If you are delinquent on your taxes, the government has the option to slap a lien on your home, making it even more difficult for the bank even to foreclose on your home and get anything out of it. Make sure that your taxes are paid on time and in full.
Creating a strong credit profile is also important, even for those who are not self employed. However, having a strong track record of paying your bills on time can make lenders give you a little bit of slack for not having a regular income from a company, because an ability to meet your obligations even when your income is not perfectly regular (or reliable) is impressive to a potential lender.
Best Mortgage For Self Employed
When Getting Mortgage if your Self Employed it is also important to choose a home that suits your realistic income, not what you project into the future. Your credit report and your record of paying taxes is based on your historical income trends, not what you think you will be making six months from now. As a result, you should choose a house that matches what you can pay as opposed to what you think you might be able to pay a few months from now. This may sound like a subtle difference, but it is one that can keep your name out of the foreclosure listings.
One hard truth about the steps in this article is that they can ultimately limit the choices you have when it comes to buying a home. However, staying within these limits can be extremely helpful, because they keep you from getting more house than you can afford. There are few situations more stressful than having a house payment that you either cannot afford or have to move heaven and earth to pay each month.
Amansad Financial has a number of connections with many different options when it comes to a self-employed person purchasing a home. Whether you are looking for a rent-to-own situation that allows you to grow into the property you want or a private lender that can give you the money you need with somewhat less hassle on the verification end (but a somewhat higher interest rate as a result), talking to one of Amansad Financial’s professionals gives you the chance at mortgage approval for the home you have always wanted. Putting this advice to work for you can make the difference between a happy future in that home and constant flight from foreclosure — or outright rejection for your loan.