Self Employed Mortgage Loans - A Survival Guide
By Fabio Marcell
When
you're self employed you have numerous advantages. As you are
a free agent, you will write off every deduction you can on your
tax return. You acquire the potential to earn extra income much
more so than someone who is employed by someone else. The best
part is that you are the gaffer, the boss! On rare occasions,
being freelance has some drawbacks. One is when you go to get
finance for a property or a large purchase. However, here are
some items to know that could help you prepare for the mortgage
loan process. A self-employed mortgage loan survival guide, if
you will.
While
confirming your income - the average lender will need to be made
aware of at least 2 years of self employment history, occasionally
they will request 3 years. They will ask to see this history verified
in tax returns, generally. Occasionally the lenders may figure
your income as being the average income you claimed on your income
taxes as profits, not your gross business income. Another time
the lender may figure your income as the lowest of the two years
and every now and again as the highest of the two years. Talk
to your mortgage professional or lender and find out their verification
criteria. For instance, some lenders may calculate a part of your
write-offs or deductions and work it back into your income. There
are ideas of additional ways that a lender may be able to verify
your income and if you are a free agent it may help you to be
able to show a supplementary of your income.
If
you can, compile a profit & loss statement , accurately quoting
your expenses & profits for the last couple of years. You
may find this tedious, but it could be used as proof of income
for a mortgage provider. If you can get it signed or verified
by your accountant, more's the better.
If
you can, it's always best to provide your bank statements to prove
your income - search for a lender who might accept as little as
2 years of statements as sufficient proof. These days, you'll
find that many lenders confirm your income in this fashion. This
is normally a more favourable method of proving your income than
lifting the figures from your tax returns. The reason being that
you can, more often than not, show that you have a lot more additional
cash flow than your tax returns might indicate. When completing
your tax returns you generally subtract every single business
expense prior to your claim of any profits. By employing bank
statements, you are still proving income, this reduces the importance
of your credit score or deposit during the application process
- while a "self-cert" or "self-certification"
mortgage will place more emphasis on your credit score.
If
you cannot provide statements apply for a "self cert",
or "stated income" mortgage. This type of loan is very
common these days. You actually need no proof of income, you simply
state on the application form, the level of your income. It doesn't
require verification on your part! This might help if you are
freelance and need to specify your income as it currently stands.
This method means that you don't have to worry about having the
lender take your last two years worth of income and average them
out. Whilst many people do abuse this feature, it's best to be
accurate when self-certifying your income. Sometimes the lender
will be able to obtain proof from your tax office to confirm your
self-cert amount. Whenever you choose a self-cert loan, this will
put more weight on the importance of your deposit and/or credit
score. So, you might normally need one or both of these elements
to be strong if you want to pursue this avenue. More often than
not, when you do a self-cert, you could well be charged a marginally
higher rate of interest because the lender will see this as more
"high-risk".
Lenders
make money by lending it to so they are always looking for ways
to make it easier for you. There are several ways that lenders
may work with you if you are freelance. The advice of a good,
independent financial advisor is recommended and there are a proliferation
of programs available to help you. If you can lay your hands on
a deposit or you have good credit, you are halfway there! You're
almost guaranteed to find a lender somewhere so don't despair!
Fabio
Marcell is a seasoned contributor to many online and offline journals
specialising in the financial sector. He has many years experience
in the loans industry and is currently sponsoring the following
website: http://www.a1-low-interest-loans.info
(for web reprints please ensure this URL is hyperlinked) (c) 2005
Fabio Marcell - All Rights Reserved