4 Steps To Qualify For A Mortgage If You're Self-Employed

DarProperty Tz · 2013-08-02T08:11:29+00:00

If you are among the thousands of people who turned the dark cloud of the recession into the silver lining of becoming self-employed, you may feel you are now in a position to refinance your mortgage or to buy a home. Even with good credit and sufficient assets, though, you'll find that even the best mortgage lenders will require you to produce your tax returns and possibly a quarterly profit-and-loss statement in order to establish that you have sufficient income to make your mortgage payments. Most mortgage applicants today are prepared to go through a few hoops to qualify for a mortgage, but if you're self-employed you may need more than a quick comparison of the best mortgage rates to find the best mortgage for you. If you're new to self-employment, you will need to wait until you have two years of tax returns filed before you can be approved for a new mortgage in order to include your self-employment income in your loan application. Low Debt-to-Income Ratio Lenders typically like to see an overall debt-to-income ratio of 41% or less, although borrowers with other compensating factors may still qualify for a mortgage with a ratio as high as 45%. You can use a mortgage calculator to estimate your housing costs along with your other debt. If you can pay off some bills to reduce your debt-to-income ratio that can be another compensating factor in your favor. Income Many self-employed individuals reduce their income for tax purposes by deducting business expenses. Be aware that your income for a mortgage loan will be the income stated on your tax returns. So if your income is too low, you may qualify for a smaller mortgage amount than you thought. Your income will usually be the average of your two most recent tax returns, even if you made more money this year than last year, it may not matter to your lender. Lenders often require a quarterly profit-and-loss statement in addition to your most recent tax returns. Some lenders want that self-employed borrowers are required to prove their ongoing income in the form of a year-to-date profit and loss statement if more than one quarter has passed since the last tax return was filed. Assets If you are refinancing, your mortgage will be based on the amount of your home equity. If you, like many other homeowners, experienced declining home values in your area, you may want to consider a "cash-in" refinance. A cash-in refinance builds your home equity faster and, if you are underwater on your home loan, can bring you back above water. If you're buying a home, a bigger down payment can make it easier to qualify for a mortgage since the loan amount will be smaller. Reserves The rules about how much you need to have in cash reserves varies from one lender to another and for different mortgage products, but you should have at least two months or more of housing payments (principal, interest, taxes and insurance) in the bank to protect yourself in an emergency. Lenders particularly need to know that self-employed borrowers, whose income often fluctuates more than regular employees, can handle their finances and have savings. The Bottom Line If you are self-employed and have solid income, assets and good credit, you are likely to be able to qualify for a mortgage as long as you provide the documentation needed to your lender. Written by: Michele Lerner To Learn More about real estate in Tanzania and Property listings visit. Dar Property Home

Thread starter DarProperty Tz
Start date Aug 2, 2013

How useful was this article?

Very useful
Votes: 0 0.0%
Useful
Votes: 2 100.0%
OK
Votes: 0 0.0%
Not useful
Votes: 0 0.0%
Not useful at all
Votes: 0 0.0%

Total voters

2

DarProperty Tz

Senior Member

Aug 2, 2013

Governor of Bettors-GB

JamiiForums uses cookies to help personalise content, tailor your experience and to keep you logged in if you register.
By continuing to use this site, you are consenting to our use of cookies.

Accept Learn more…

Back

Top Bottom

Forums

New posts

4 Steps To Qualify For A Mortgage If You're Self-Employed

How useful was this article?

Very useful

Useful

OK

Not useful

Not useful at all

DarProperty Tz

Senior Member

Governor of Bettors-GB

JF-Expert Member

Our Community

Regional Communities