How to get a mortgage is a common concern, especially for the self-employed. The financial crisis of 2008 drastically altered the world of real estate and mortgage finance. Where stated income loans were quite common before the crash, they became less so after. Then in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed. This new law eliminated stated income loans altogether. This change in the law severely limited self-employed people everywhere from being able to qualify for a mortgage loan.
W2 wage earners are able to document income and assets based on gross earned income. But the self-employed folks must document income and assets based on net income after taxes. In effect, this is an apples to oranges difference in what is eligible to be considered as income. Since most business owners shield their income from taxation by maximizing itemized deductions, their taxable net income can be low when compared to the gross income figure of their W2 employee peers.
Lenders realized the problem, and a small few have created new loan products for self-employed individuals. Here are some of the details:
Instead of net tax return statements, self-employed business owners in Atlanta can use bank statements detailing the last two years. The average monthly will be used as monthly proof of income. Other assets, such as retirement accounts, stocks, and real estate, must be fully documented. Lenders will also request a few details, such as a letter from accountant, business website address, and listing of your business. W2 co-borrowers, if any must fully document as per usual. Credit score can be in the mid 500’s, but it truly depends on the lender. Down payments for this type of loan are typically 10-20% down.
Federal Housing Administration (FHA) loans are backed by the U.S. government. General guidelines for this type of loan are intended to promote homeownership among those who don’t have a large amount of money for a down payment. First-time homebuyers often benefit from this program. Currently, a 3.5% down payment is required, with a preferred minimum credit score of 620 and debt-to-income ratio of no more than 43%.
Veterans and qualifying military personnel can find great benefit in this loan option. Self-employed individuals who meet the criteria can access these loans, which provide very favorable terms. The loans are available through regular lending channels, such as mortgage companies and banks, and are backed by the U.S. Department of Veterans Affairs. If you are eligible, talk to your mortgage professional for loan details.
These loans are geographically restricted for use in rural areas. It’s a great loan option with no down payment needed. Your mortgage professional can assess qualification.
DUFFY Realty is a preferred real estate company focused on providing high-quality service to our clients. If you’re ready to buy or sell a home, call us for a friendly conversation about your needs: (678) 318-1700