Can self-employed borrowers find mortgages?
Advice from a mortgage broker with two decades of experience
LAGUNA HILLS, Calif. /ACCESSWIRE/April 6, 2022/ Since the financial crisis of 2008, the process of obtaining a mortgage has become much more complicated. Prior to 2008, mortgage lenders did not review borrowers’ finances as much as they do today, allowing high-risk borrowers to qualify for mortgages with little or no documentation.
Of course, the lack of verification led to fraud. Because so many people were eligible for loans, lenders ultimately did not have enough money to make loans. Additionally, house prices began to decline rapidly; in turn, mortgage interest rates rose and people stopped being able to pay their mortgage payments. This has resulted in millions of foreclosures and bank failures.
Today, in an effort to prevent a repeat of the mortgage crisis, lenders are taking a closer look at borrowers’ finances before agreeing to provide loans. For W2 employees with stable sources of income and good credit, finding a mortgage shouldn’t be a problem.
However, self-employed borrowers sometimes find it more difficult to qualify for a mortgage, as their income is more difficult to justify than for W2 employees.
Brian Jahanbin, president of mortgage brokerage Maxim Lending, explains, “That’s when it helps to work with a brokerage. If you try to work directly with lenders, they might see that you’re self-employed and just say “No,” even though you have good credit. It’s harder to prove your income if you’re self-employed because you don’t have a W2 to show.
Self-employed borrowers can apply for the same loans as everyone else, and the same things are looked at: your credit score, your debts, how much you can afford as a down payment, and your income. The problem is that without W2 present, self-employed people don’t have documented proof of income at hand, which can result in rejection from lenders.
The level of scrutiny your finances will be subject to depends on the lender you are trying to work with. Some are more forgiving than others. If you’re interested in a particular home and want to make an offer, you don’t have all the time in the world to find a lender that meets your needs perfectly. The supply is so low and the demand so high that offers are accepted within a day or two.
“Mortgage brokers have the experience and connections to find the right lender for your situation,” says Brian Jahanbin. “After 20 years in the mortgage industry, I have a relationship with lenders. They are often more willing to work with someone they know than with a borrower they perceive as high risk.
It is possible to find a more flexible lender. For a conventional loan, most lenders require you to prove at least two years of steady employment, but some might be willing to bend this rule a bit to include one year of employment and one year of training or education in view of this post. Your loan officer will want to be sure that your current source of income is likely to continue for several years, allowing you to pay your mortgage payments.
Obviously, for self-employed borrowers, proving those years of income is much more difficult.
“Self-employed borrowers can use 12 months of business bank statements or tax returns to qualify for a mortgage,” says Brian Jahanbin. “You can prove that you have a stable income by presenting the lender with bank statements showing a minimum of 12, but ideally more than 24 months of constant income deposits.”
However, bank statement loans are generally considered higher risk for lenders and may require higher interest rates and larger down payments.
“If you’re self-employed, you can also use your tax returns as income verification,” says Brian Jahanbin. “You are likely to qualify for a loan if you have a minimum credit score of 620, can pay at least a 3% down payment, and have a debt-to-equity ratio below 45%. But even if these things don’t apply to you, there are always other options to consider.
Maxim Lending has maintained success despite the volatility of the housing market, as highly experienced brokers like Brian Jahanbin are able to offer clients something that most lenders cannot – excellent customer service and a desire to find a loan that suits your specific situation.
If you’re one of the many Americans who are self-employed in some capacity, you don’t have to consider buying a home an impossible dream. With a little creativity and patience, you can work with a mortgage broker like Maxim Lending and find a loan that will finally allow you to buy your dream home.
To learn more, visit maximlending.netcall 888-345-9333or email Brian Jahanbin: [email protected].
THE SOURCE: Maxim Credit
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