Q&A: How can the self-employed get a mortgage?

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Real Estate Agent with MVP Realty SL3217142

FORT LAUDERDALE, Fla. – Dec. 16, 2013 – Question: I am self-employed and make a good living. I want to buy a house, but it’s hard to document my income. So I’ve been getting turned down for a mortgage, even though I’m willing to make a large downpayment. Any hope for me? – Trevor

Answer: With banks and the federal government tightening lending requirements, it has become increasingly difficult for people who don’t get regular paychecks to qualify for loans. Although still rare, “stated income” loans are making a comeback. But they require very high credit scores, large downpayments and deep cash reserves.

If this is not available, you will have to try to get a loan based on your tax returns. Still, this can be difficult because the self-employed tend to use expenses to offset their net income, resulting in low numbers. That forces them to choose between favorable tax treatment or getting a loan.

If you can’t find a loan from a traditional bank, there are a growing number of private lenders. Some, such as “hard money” lenders, will offer a smaller amount based only on the value of the house, perhaps lending 50 percent of its value. Others also will look at your credit, income and debts and lend larger amounts.

Because these kinds of loans are risky for the lender, be prepared to pay a higher interest rate and higher closing costs. Shopping around is especially important with these loans because the costs and rates vary greatly from one lender to another.

About the writer: Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program.

The information and materials in this column are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed. Nothing in this column is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.

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Rainmaker
872,283
David Popoff
DMK Real Estate - Darien, CT
Realtor®,SRS, Green ~ Fairfield County, Ct

Self employed and small business are the backbone of the US economy, to bad it almost does not pay off to be one anymore.

Dec 16, 2013 10:18 PM #1
Rainer
146,252
Andrew Payne Realtor® Richmond VA Homes For Sale~804-938-5257~
Piedmont Real Estate - Richmond, VA
Richmond, VA, Real Estate, SRES®, NAR Green

Bob,

Part of the problem could be that many of the self-employed may choose not to declare all or even most of their income.  I think this decision to save on taxes obviously would backfire when applying for loans!

Dec 16, 2013 10:24 PM #2
Rainmaker
45,328
Bob Forman
MVP Realty - Bonita Springs, FL
Working 7 days a week for my customers.

I agree Andrew & David, just did a deal where the buyer claimed to make a 6 figure income but only showed about 10,000 on her taxes. One of the loan officers I work woth got her done on a private money mortgage. 35% down 10.5%, and 6 points up front. She accepted and the deal on a 250,000 home closed.

You will pay one way or the other if you are self employed making a nice living and you want to buy a home. Thanks for the comments, Bob

Dec 17, 2013 12:01 AM #3
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Rainmaker
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Bob Forman

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