Now here's a challenge. You work for yourself, maybe you sell Mary Kay, or, maybe you're an independent landscape artist. In either case, your tax returns are done in your favor--you don't owe Uncle Sam anything, and life is good until...you decide to purchase a home.
Everyday I attempt to pre-qualify this type of borrower. They want and oftentimes need 100% financing. In today's mortgage market, that means you must do a fully documented loan. In most cases, lender require tax returns for the last 2 years. The net earnings reported must be enough to qualify for a home; in most cases, it is not. So what do you do?
This dilemna probably inspired the "Stated" loan. Some lenders use other names like "Reduced Documentation." If you meet the credit score requirement and you have money for a down payment (~5% or more, depending on your score), then you are still in the game. At one time we used a "Bank Statement Loan" for these type of borrowers. I have not closed this type of loan in a while.
If you need a FHA loan and there is not enough income on your tax returns, you may want to consider adding a blood related, non-occupant co-borrower to the loan. Or, you may want to have your tax returns amended. Better yet, if you are newly self-employed and not yet a homeowner, I hope you are reading this post now so that you will take this into consideration before you buy.
As always, I can be reached on 404-401-6209 if you have additional questions about this.
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2 comments:
Thanks for your post about thhe Self Employed.
I am looking into to buy for the first time and have had self employed for the past 9 years and have had my bussiness for the past 5 years. Would the UW use my 2009 income based on a P and L that I provided from My CPA who does my accounting. I want to use my uptodate 2009 income since it has incresed by 25% from last year(2008). My 2008 had also incresed by 25% from 2007 which can be seen by looking at my 07 and 08 returns. Thank you for all of your help and time
Per FHA guidelines, mortgage underwriters most often use the most recent 2 years of tax returns to determine income. If you are buying a home today, an underwriter would use 2007&2008. If you buy in 2010, they will use 2008 and 2009.
There are times when an underwriter can be persuaded to use one year of tax returns and a current P&L but that is not the norm. It depends on the situation.
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