Those self-employed may worry about many things when it comes to buying a house. However, none of these worries should be roadblocks to home ownership.
Self-employment doesn’t have to be a hurdle blocking home Ownership
Jason, in Fort Lauderdale, recently went to see a lender. He found a $145,000 house in the area that he wanted. Though he could put down up to a 50 percent down payment, he was discouraged by the lender’s advice.
“I’m interested in a multi-family property and I have excellent credit,” said Jason “but I am newly self-employed and one lender I contacted said I would need two years of history as self-employed to qualify for a mortgage,” he said.
Are home ownership dreams dashed?
Should Jason shelf his dreams of owning a home for two more years? He may be able to get qualified for a mortgage in only a year, if certain conditions apply. It is true someone who is self-employed may only get six mortgage offers compared to an employee who works at a large corporation and gets 10 mortgage offers. However, hope is not lost for those who are self-employed, even though Florida regulations those other states do not have, i.e. the stated income loan.
Under Florida’s stated income loan regulation, owning a house is not easy. A mortgage lender must calculate what a self-employed worker made per the year, based on more than tips and wages. The lender must look at all possible factors when deciding if someone who is self-employed is overextending himself.
Three tips the self-employed need to know
- Returns do not always reflect true income – Self-employed people can take advantage of many tax reductions related to their business. These deductions may involve retirement plans, business meals, interest on business loans or a business credit card. This may reduce the amount of income made. Tax returns may show a freelancer has made less money than they are actually taking in. Expenses may not reflect the actual cash flow, making it difficult to qualify for a mortgage. This fact may reduce the loan amount a borrower may receive. In some circumstances, a self-employed business owner may be able to add in one-time expenses, such as the expense of buying a liquor license.
- Documentation for those deductions – According to Glenn Gordon, a mortgage broker in Fort Lauderdale, documentation for self-employed workers may be a nightmare. It may be difficult to separate personal expenses from business ones and the more those who are self-employed must show they have the funds for $145,000 house purchase. Keep in mind that in addition to providing those two years of paperwork, self-employed workers must file a 4506T form. This process allows lenders to verify employment earnings.
- Lower credit does not mean denial – According to Zillow, those who are self-employed may need a larger down payment. The average homebuyer, who is self-employed, put down 15.3 percent while those who were not self-employed put down .7 percent less. Those who are self-employed also have a lower credit rating. Forty-seven percent of those self-employed said their credit rating was 720, while 28 percent said the rating was below 680. Is a lower credit scoring a deal-breaker? It does not have to be. Some mortgage lenders have approved applications for those whose credit rating was below 640.
A qualified real estate agent who understands mortgages can walk you through the process of how to get great deal on a mortgage rate and not overextend yourself financially. Homeownership is possible, even if you are self-employed. Help exists for self-made businessmen and women to be able to buy the home of their dreams. You only need to know where to look.