Mortgages for the self employed

While many self employed borrowers love the freedom of being their own boss, they cringe at the thought of taking out a loan because many banks have much tighter restrictions on self employed borrowers. There are many ways for self employed borrowers to purchase a home depending on their credit history, how long they have been in business, how many of their business expenses are in their personal name, and how many deductions they claim on their taxes.

Many self-employed borrowers will use an alternative income documentation type loan. They may use a stated income loan, a no income documentation loan, a no ratio loan, or a bank statement documentation type program. Many times self-employed borrowers have income that is either hard to document or not very consistent and these types of loans help them to qualify with less or alternative documentation.

A general rule of thumb is a two year history of being self employed.

One popular low documentation loan program will use 12 months of bank statements to prove a steady income. Many of the lenders offer this program at the same interest rate as regular full documentation loan. If proving steady income will be difficult or if you have been self employed for a short period of time then a no ratio or a no documentation loan may be a good choice. Expect rates on no doc loans to be higher than full doc prices.

Many self employed or small business owners do not show much income because of business expenses and deprecation. Do not let this worry you. Most lenders will add your business deprecation back in and count it as income.

Make sure to have plenty of documentation available for your mortgage broker to show the lender about your financials.

If you are self-employed and need to do a stated income loan; some lenders will accept two years of a business license as proof of self-employment. If business licenses are not available a letter from a CPA stating the existence of business activity on your prior two years tax returns will also be suffice for self-employment proof.

Many self employed borrowers qualify for a "Full Doc" loan, ask your loan officer for help in determining what loan type is best for you.

There are numerous programs available to help determine your qualifying income as it pertains to mortgage loans, your mortgage agent should be able to help.

Self Employed Borrowers can overcome documentation issues by doing a no-doc mortgage or limted documentation mortgage.

Mortgages for the self-employed borrower usually require more documentation than salaried borrowers. While, salaried borrowers only have to produce paystubs and w-2's the self-employed borrower requires such documents as cpa letters,full tax returns, bankstatements, and business licenses to prove their employment and/or income.

Self-employed borrowers may have different considerations because they do not receive a regular paycheck like other workers. Lenders will have to look at other factors to determine the financial situation of a self-employed borrower.

Self employed borrowers who wish to state their income to simplify documentation should consider a stated income / verified asset, or SIVA mortgage loan application. Verifying assets, especially liquid reserves, can make a big difference in how much you are permitted to borrow and at what cost when compared to stated asset or no doc loan programs.

» DISCLAIMER: The information contained in this article on 'Mortgages for the self employed' 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.