Blog :: 11-2015

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A Self-Employed Homebuyers Guide to Getting a Mortgage Loan

A Self-Employed Homebuyers Guide to Getting a Mortgage Loan

It's no secret that one of the most important factors in getting qualified for a home mortgage loan is income. Lenders, both large and small, justifiably want to know that you have money rolling in on a consistent basis"as this is a good sign that that you're able to repay the money you borrowed. Traditional homebuyers are able to prove this by providing a W2 from their employer indicating just how much money many they make week-to-week or month-to-month. However, things get a little bit trickier when we start talking about mortgages for self-employed individuals. Here's why:

Showing Your Income is Key to Applying for Mortgages for Self Employed Homebuyers

Unlike a traditional homebuyer, self-employed homebuyers can't simply produce a W2 to prove their income. Instead, self-employed applicants are expected to produce evidence of the last two years in tax returns. Coming up with this information, in addition to other supporting documentation, can be onerous, so be prepared to do some work. Regardless of however long it takes to come up with this information, it's a good idea to have these documents ready to go when applying for a mortgage.

The real challenge comes when it's time to clear up any discrepancies between what a self-employed borrower thinks they make in income, and what their tax return actually says they make.

The Most Common Problem in Obtaining a Self-Employed Mortgage Loan

The most common problem self employed individuals encounter when applying for a home mortgage loan is differentiating between how much they claim they make, and the amount the government decides they actually make in net income, according to their tax returns.

Despite, having plenty of cash flow on hand, not to mention access to credit through their business accounts, self-employed individuals are often shocked when they learn just how much their net income actually is after factoring in tax write offs and other business expenses. Fannie Mae and Freddie Mac, as well as the FHA, all base their lending decision on net income.

So now that you know the challenge that is before you, let's talk about the best way to approach qualifying for a self employed mortgage loan. The following step-by-step guide should help:

Step 1: Gather all documents

As mentioned earlier, getting your tax returns in order is of utmost importance. While most government backed loan programs require at least the last two years' worth of tax returns, there are in fact some conventional loan programs that only require one year's worth"which is great for applicants who've been self employed for less than two years. Either way, try to get your last two tax returns if possible. In addition, you'll want to gather other important tax documents that your lender may require. These include:

  • Tax identification number
  • Schedule C
  • Schedule E
  • Form 1120S
  • K-1
  • Profit and Loss Statement

Getting a hold of past tax returns and other supporting documents should be simple. Most self-employed individuals can turn to their accountants for this information. In addition to tax forms, you may also need certain documentation that proves your self-employment. These documents could include:

  • Business license "This document is typically issued by the state, city or county, and should include the mortgage applicant as the business owner, along with the name of the business.
  • Letter from clients"You'll need to provide a minimum of one letter from the customers/clients you service in your self-employment. These customers/clients must be legitimate businesses. Letters should be on letterhead, and include contact name, type and date of service.
  • Miscellaneous documentation"Other documents you may need includes proof of bond insurance and membership to professional organizations, as well as documents that indicated you're DBA (Doing Business As).

Step 2: Meet with your broker/lender

Schedule a meeting with your broker/lender and be sure you have all of the documents you need to walk in the door and get the answer needed to proceed with buying a home. A lot of times, the lender or broker assisting you will be able to take a look at your tax return and tell you immediately what your chances are of getting approved for a self-employed mortgage loan. If you're concerned you will encounter an issue involving your net income as outlined above, it may be a good idea to bring your accountant with you to the meeting.

Step 3: Plan, prepare and apply

The third and final step is the most crucial of all. If you're like the countless other self employed individuals who encounter issues with getting a mortgage due to discrepancies in their net income, it's a good idea to make the following adjustments when preparing your upcoming tax return. Here are few things you need to do:

  • Don't' write off nearly as much as in years past! Tax write-offs are likely what caused your net income to be so low on past tax returns, so try and avoid writing everything off for your upcoming return"if possible. It may sting, but it's the most effective way to prove to a lender that you are worth more than what your past tax returns indicate.
  • Clean up your finances so that your business doesn't commingle with your personal funds. If you have equipment you use for your business listed on your personal credit report, be sure to try and clear all that up before applying for a mortgage.

With some careful planning and meticulous record keeping, you should have no problem getting a self-employed mortgage loan"no matter if you're a cash strapped freelance writer, a self-employed contractor or a private small business owner.

Credit Ruth at Blue Water Mortgage, who works with self-employed homebuyers all the time to help get them qualify for a mortgage loan. Blue Water Mortgage - Main Office  7 Merrill Ind. Drive Hampton, NH 03842  Phone: 603.926.9695

 

Hermit Lake Cottage in Sanbornton. Call for Details

Hermit Lake Cottage in Sanbornton. Call for Details

 

If a dream  lake home is in your future call 1-888-737-5550 or e-mail at info@nhlakesrealty.com  or visit our websites to view lake homes in New Hampshire at www.nhlakesrealty.com or www.lakeorskirealestate.com.

Contact Carl Sack or Paula Hinckley   #nhlakesrealty

 

Adirondack Luxury Property on the Shores of Lake Winnipesaukee, NH

Nestled on the shores of Lake Winnipesaukee, this beautifully appointed 5 bedroom, 4 bath Adirondack lake home offers a wonderful blend of rustic elegance and style. High-end finishes compliment the open floor plan design including cherry floors, post & beam great room, fieldstone fireplaces, Chef's kitchen with Viking range, subzero refrigerator and wine refrigerator, Wolf warming drawer and more. Enjoy the whole house Bose stereo system inside and out. Master suite features a gas fireplace, cherry floors and balcony. Spacious master bath offers walk-in closets, vintage soaking tub and large luxurious shower. Other features include a 1st floor office, Sunroom, lower level recreation room with bar and surround sound. Fantastic outdoor living space with blue stone patio and walkways, Mahogany deck, hot tub and large dock with breakwater; room for 3 boats. This home is complete with the "dream" garage and 12x16 cedar shed for all storage needs. Magnificent quality-built home on Lake Winnipesaukee.  Located minutes to Gunstock Ski Resort and Golf, Hiking, Shopping are all close by. You can visit your favorite restaurant by boat, snowmobile or car.  Listed by Jackie Gauvin, Four Seasons Sotheby's International Realty.  

 

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Five Bedroom Luxury Winnipesaukee Adirondack $2,699,000

 

For additional information on luxury lake homes call Four Seasons | Sotheby's International Realty at 1-888-737-5550 or e-mail at info@nhlakesrealty.com  or visit our websites to view lake homes in New Hampshire at www.nhlakesrealty.com or www.lakeorskirealestate.com.

Contact Carl Sack or Paula Hinckley   #nhlakesrealty

 

NH Marine Patrol reminds lake ?bubbler' owners to obtain permits

Marine Patrol reminds lake "˜bubbler' owners to obtain permits

Without permits, bubbler owners face up to a $1,000 fine.

By DANSEUFERT Union Leader Correspondent

GILFORD " As winter approaches, it's time for owners of property and docks on New Hampshire lakes to prepare, especially with regard to ice-preventing "bubblers" that have grown in use in recent years, safety officials say. Bubblers are underwater heating and circulation systems used to protect dock areas from movements of the winter ice pack that will be coming soon. In recent years, they have caused problems when left unattended and without permits, said Capt. Tim Dunleavy of the state's Marine Patrol. A few years ago, for instance, during a warm mid-winter day, a bubbler had caused an area of ice to become thin, which endangered people trying to access the ice from a shoreline in Center Harbor. "More and more people are using them," Dunleavy said. "What happens is, during a thaw period, people and snowmobilers go on the ice and think it's safe, but it's not. If they have a permit, at least we know they are there." Without permits, bubbler owners face up to a $1,000 fine, he said. In the online Winnipesaukee Forum, members have complained about bubblers causing problems. One poster said bubblers "have continued a practice, even after notice and request, to run 1-2 (bubblers) without thermostat controls, without timers, 24/7." "This has caused the lakeshore to be open water, sometimes hundreds of feet out into the lake "¦ With the snow, the apparent danger of the thin or no ice underneath is a real concern." Dock owners know that they must either remove their structures from the lakes or pull them above the water, said Darlene Forst of the Department of Environmental Services' Shoreline Section. Some dock owners are permitted to leave them in the water for various reasons, she said. "At Ice-In, people should know they have to get their docks out of the water, unless they have permits saying otherwise," Forst said. Dock owners who don't follow the rules face fines as well, she said. Ice-In, less publicized than Ice-Out in the spring, occurs when ice covers state lakes. In some years, Ice-In has been in January.

 

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Permanent Docks Require a bubbler or Ice Damage may result

 

For information on lake homes call 1-888-737-5550 or e-mail at info@nhlakesrealty.com  or visit our websites to view lake homes in New Hampshire at www.nhlakesrealty.com or www.lakeorskirealestate.com.

Contact Carl Sack or Paula Hinckley   #nhlakesrealty