Self employed mortgage loans

If you are self employed you are probably aware of the different financing rules that apply for self employed borrowers.

You will probably need a letter from your CPA to verify that you are self-employed. Your CPA is the only person who can verify that you own your own business.

Many lenders ask for a business license that's active and has been active for at least two years. This is proof of self employment for many lenders. In cases where the business does not require a license, the CPA letter may be used.

Because of the trouble documenting income for many self-employed borrowers, a stated income, no doc., no ratio, or bank statement program is used many times for income documentation for a self-employed borrower. Many self-employed borrowers actually make a good amount of money, and enough money to qualify them for the loan, however instead of going through the headaches of trying to document their income with tax returns for the last two years, a current balance sheet, a current profit and loss statement signed and verified by their CPA, and a CPA letter to show proof of being self-employed for the last two years many borrowers will just opt for a reduced documentation loan. Sometimes if your credit score is high enough you are still able to qualify for the best rates and you don't have to take a rate bump for the reduced documentation.

In some cases, bank statements may be used as documentation of self-employment income. Check with your mortgage professional.

If you have a very high credit score or a large down payment your mortgage professional may be able to waive the income documentation requirement entirely. You may need credit scores of 720+ or a 25% down payment. Be sure to ask you preferred mortgage professional if you qualify for a income documentation waiver.

If you are newly self employed and have been in the same line of work for 2 years, most lenders will use your previous employment record to satisfy the 2 year self employment history requirements.

In some cases, in lieu of a letter from the Certified Public Accountant, banks accept Articles of Incorporation and professional licenses as proof of self-employment.

In addition to the CPA letter, the following may be used to supplement the verification of self-employment:
Business License, Letter from Bank, Yellow Page Ad, Paid County Business Fees, Secretary of State Web Site, Self employment Insurance Coverage, Customer Reference Letters, or Form 4506T (Request for Transcript of Tax Return)

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.

Lenders require different information from self-employed borrowers before they will provide a mortgage loan. Normally buyers are required to show salary information to establish continuity of money earned to reassure lenders that the mortgage loan will be repaid.

» DISCLAIMER: The information contained in this article on 'Self employed mortgage loans' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.