A major problem with getting a self employed mortgage loan is documenting an applicants income to the lenders satisfaction. Applicants with jobs can provide lenders with pay stubs, and lenders can verify the information by contacting the employer. With self-employed applicants, there are no third parties to verify such information.
Most lenders will accept 2 years business license as proof.
Self-Employed Mortgage Loans require borrowers to provide alternate documentation to prove their income such as 1099's, bank statements, CPA letters, or Profit and loss statements.
In cases where borrowers do not have a business license they might be able qualify for a self employed mortgage loan with a letter from their Certified Public Accountant which vouches for the borrowers ability to generate earnings as the CPA has prepared their taxes in the past.
Self employed persons may be able to qualify for a mortgage on the basis of their business bank statements on certain programs, provided that a CPA will certify that they have full access to these funds and that withdrawing these funds will have no material impact on the business.
For Self Employed Mortgage loans, one of the most common ways to show a source of income is a current business license.
A consequence of stating your income for a self-employed loan is that the interest rate will be slightly higher than a borrower who can fully document his/her income. However the simplicity of avoiding gathering all those documents and time savings may be worth it.
Many self-employed home buyers opt for stated income mortgages. Stated income mortgages offer the convenience of not having to provide tax returns and W2's. However, most lenders do require a letter from the borrower's accountant to prove that the loan applicant has been self-employed for at least 2 years.
Self Employed Borrowers can overcome many of these hurdles by doing a no-doc mortgage or limted documentation mortgage.
With self-employed applicants, there are no third parties to verify such information. Consequently, lenders fall back on income tax returns, which they typically require for 2 years.
Many self-employed consumers opt for a bank statement program to obtain a mortgage loan. A bank statement program is one in which the lender will use a certain number of months worth of bank statements, add up the total deposits and then divide by the certain number of months. This will provide the lender will a dollar amount for average monthly income. Usually a lender will require either 6,12, or 24 months worth of bank statements on this type of program.
Many Self Employed borrowers opt for a stated income loan. A stated income loan qualifies a borrower using the income the borrower states on the application form – as opposed to the income the borrower can document. With a stated income loan, the lender agrees not to attempt to verify the income the borrower states on the application. Its very important to hire a mortgage broker who is proficient with self employed borrowers.
Just because you don't have to prove your income doesn't mean you don't have to prove employment. Many lenders will accept a letter from your Certified Public Accountant stating that you have been self-employed for the length of time you provided on your loan application. If you are unable to prove neither income nor employment ask your trusted mortgage broker if you qualify for a No Documentation loan program.
Lenders generally require two years salary history to establish the stability of income. This can be difficult for self-employed borrowers to establish so they usually use a stated income or no documentation loan.
