Are you self-employed in having a tough time getting a mortgage? Here’s what you need to know…
When it comes to being self-employed one of the biggest challenges that you’re going to have as an entrepreneur is reporting income. The more income you show the more taxes you pay the less you have for savings and for other projects like purchasing a home. A great alternative to purchasing a home is a nontraditional loan often called a Non-QM loan meaning a non-qualified mortgage. This is a mortgage that is beyond the guidelines set forth by Fannie Mae and Freddie Mac for most residential mortgage loans.
For example, a bank statement loan that averages your bank statements over the most recent 12 months or the most recent last 24 months could be a positive alternative. Here’s what you need to know…
If your in your self-employment venture you’re going to pay more in taxes by showing a bigger profit however your interest rate generally will be better, your down payment will be better far more favorable think less down as little as 5% down for a conventional mortgage or even 3% down if you’re a first time home buyer.
If you report lower profits, what you save in taxes as a result of taking more deductions you end up having to repay via a larger down payment and possibly a higher interest rate on a bank statement mortgage loan program. Let’s say in the last few years your income was a little bit low in the course of your business and you’ve been filing as self-employed for the most recent last 5 years, you can use on your income tax returns to qualify. Put another way if 2022 was a good year, but the previous years showed lowering the lender would only need your most recent 2022 tax return assuming you’re going to buy a home in 2023. This means only the higher income year is used to qualify.
There is no such thing as a perfect scenario when you’re self-employed and you take deductions you are eligible for you in the course of your business. A one time expense in relation to buying a home with a favorable rate and down payment vs. a higher rate and larger to buy the same priced home, only you can decide. If you’re thinking about what it might take to buy a home and you’re self-employed and you want more information about creating a long-term affordability plan start today with a complimentary mortgage rate quote.
RELATED MORTGAGE ADVICE FROM SCOTT SHELDON
View More from The Mortgage Files:
begin your mortgage journey with sonoma county mortgages
Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!