Self Employed Archives – Fred Gruber - First Rate Financial Group

08

Feb

Mortgage Tips

Navigating Mortgages as a Self-Employed Professional: A Guide to Non-QM Lending

For self-employed professionals, the mortgage process can feel like passing through a maze, fraught with challenges and uncertainties. Traditional lending standards often favor individuals with stable, predictable incomes, leaving entrepreneurs and freelancers in a precarious position. However, there’s a solution gaining traction in the mortgage industry: Non-Qualified Mortgages (Non-QM). We’ll explore how self-employed individuals can successfully navigate the mortgage landscape, leveraging non-QM lending to their advantage.

Understanding Non-QM Lending

Non-qualified mortgages represent an alternative to the stringent criteria of Qualified Mortgages (QM). While QM loans adhere to strict guidelines set forth by the Consumer Financial Protection Bureau (CFPB), Non-QM loans offer more flexibility in underwriting criteria. This flexibility is particularly beneficial for self-employed professionals whose income may fluctuate or not fit neatly into traditional documentation standards.

Documenting Income

For self-employed individuals, documenting income is often the biggest hurdle when applying for a mortgage. Unlike salaried workers who can provide W-2 forms, entrepreneurs must demonstrate their income through other means. Here are some key documents that can help verify self-employment income:

Tax Returns: Lenders typically request two years of personal and business tax returns. This provides a comprehensive overview of your income and expenses over time.

Profit and Loss Statements: These documents offer a snapshot of your business’s financial performance. They should align with the information presented in your tax returns.

Bank Statements: Providing bank statements can corroborate the income and expenses reported in your tax returns and profit/loss statements.

1099 Forms: If you receive income from clients or contracts, 1099 forms can serve as additional evidence of your earnings.

Managing Tax Considerations

While maximizing deductions can reduce taxable income, it can also diminish the apparent income lenders use to evaluate mortgage applications. Self-employed individuals often face a delicate balancing act between minimizing taxes and showcasing enough income to qualify for a mortgage. Here are some strategies to consider

Stabilize Income: Lenders prefer consistent income streams. If your income fluctuates, consider strategies to stabilize it, such as diversifying revenue streams or securing long-term contracts.

Minimize Deductions: While deductions are essential for reducing tax liability, excessive write-offs can lower your qualifying income for a mortgage. Work with a tax professional to optimize deductions while maintaining a healthy income profile.

Delayed Write-Offs: Consider delaying certain deductions in the years leading up to a mortgage application. This can temporarily inflate your income, improving your chances of mortgage approval.

Creditworthiness: In addition to income, lenders consider credit history when evaluating mortgage applications. Maintain a strong credit profile by managing debts responsibly and addressing any negative marks on your credit report.

Embracing Non-QM Lending

Non-QM loans offer a lifeline to self-employed professionals who struggle to meet the stringent requirements of traditional mortgages. These loans take a more holistic approach to underwriting, considering factors beyond strict income documentation. While interest rates may be slightly higher, Non-QM loans provide the flexibility and accessibility that many self-employed individuals need to achieve homeownership.

Securing a mortgage as a self-employed professional presents unique challenges, but it’s far from impossible. By understanding the nuances of non-QM lending and taking proactive steps to document income and manage tax considerations, entrepreneurs can increase their chances of mortgage approval. Remember, each lender may have different criteria and preferences, so it’s essential to shop around and find the right fit for your financial situation. With diligence and strategic planning, homeownership can be within reach for self-employed individuals navigating the complex world of mortgages.

26

Jan

By First Rate Financial Group

Mortgage

Getting A Mortgage When Self-Employed: What You Need To Know

getting-a-mortgage-when-self-employed-what-you-need-to-know There is a common misconception that someone who is self-employed will not have the tax records or income necessary to qualify for a mortgage; however, that is not necessarily the case. In reality, if you are self-employed, there are a lot of home loan options available to you. It is true that it might require some additional paperwork and planning, but as long as you have the necessary information, you should be able to qualify for a mortgage.

What Is Necessary To Qualify For A Self-Employed Mortgage Loan?

If you are interested in taking out a mortgage when you are self-employed, you will be held to the same standards as everyone else. This means that the lender is going to require a solid credit score, a long credit history, a favorable debt-to-income ratio, and enough money to cover the down payment. In addition, you will also have to demonstrate a solid income history, just like everybody else.

That is where the difference comes into play. A W-2 employee may be able to provide a few pay stubs, but someone who is self-employed may be required to provide up to two years of self-employment income.

How Do I Maximize My Chances Of Getting Approved?

If you are self-employed and want to maximize your chances of getting approved for a self-employed mortgage, there are a few steps you should take. First, you need to make sure your debt-to-income ratio is as low as possible. That way, you can reduce the risk to the lender. You can also improve your chances by preparing financial documents ahead of time. That might mean including profit and loss statements, two years of tax returns, and 2 years of business taxes if you have them. Do not forget that improving your credit score and putting more money down can improve your chances of getting approved.

Lengthen Your Income History

Finally, if you are serious about getting approved, lengthen your income history. Show that you are willing to provide a longer track record of income, and the bank will feel better about providing you with a self-employed mortgage loan. That way, you have the financing to purchase the house of your dreams.

14

Oct

By First Rate Financial Group

Mortgage

A Non-QM Mortgage: What Does This Mean?

A Non-QM Mortgage: What Does This Mean? If you are interested in purchasing a house, you need to review all of the offers available. The vast majority of loan officers are going to talk about something called qualifying mortgages, which is usually shortened to QM. You may be asking, what is a non-qualifying mortgage? This is usually shortened to Non-QM, and it simply means that the loan does not conform with the rules and regulations put in place by the Consumer Financial Protection Bureau, usually shortened to CFPB. What are the differences between a QM and Non-QM mortgage, and which one is right for your needs?

A Qualified Mortgage Generally Provides More Protection

In general, a qualified mortgage (QM) typically provides you with a greater degree of protection. The loan has to conform to certain standards. This means that the loan cannot last longer than 30 years, there cannot be any prepayment penalties, it cannot be a balloon loan, and it should not have any negative amortization features. At the same time, qualifying for a QM mortgage can be more difficult, as lenders have to follow all of the rules and regulations set forth by the government. This includes verifying bank statements, income, W2s, and numerous other examples of documentation.

A Non-QM Mortgage May Provide More Flexibility

You may want to take a look at Non-QM mortgages because they might offer more flexibility. These are very useful for gig workers that do not qualify for QM loans. Another reason is, you might want to lengthen the loan term to 40 years. Or, you might be interested in a loan that only requires you to pay interest, particularly if you are a real estate investor. This is also an option available to foreign nationals who would like to buy property in the United States. On the other hand, you should talk to a professional who can review the risks of a Non-QM mortgage as well.

Find The Best Loan Option For Your Needs

Ultimately, it is critical to review the benefits and drawbacks of each option before you make a decision. The right loan for one person might not necessarily be the right loan for you. If you talk to an expert, you can review all of the options available and put yourself in the best position possible to qualify for a home loan.