Yesterday, I got a call from a woman who owns her own bookstore. She was calling to see about possibilities of refinancing. She now has an interest only mortgage loan that she wants to refinance to a 30-year fixed. When she got her mortgage 5 years ago, she qualified using a program called “No Income Verification.” Today, no income mortgages are virtually non-existent unless you have sizeable equity in your home.
But that doesn’t mean her refinance chances are non-existent. Many self-employed borrowers are able to qualify using their tax returns. We analyze the tax return and extract the data to get revised numbers for business income.
If you are self-employed, there is sometimes a conflict between what you are legally able to deduct on taxes, yet at the same time be able to show sufficient adjusted income to qualify for the mortgage. Care should be taken at time of tax filing to be certain both needs can adequately be met – especially if there are plans to apply for a mortgage in the near future.
Deductions for business expenses reduce income on the tax return. If you’re planning to buy a house next year or down the road, check with your accountant to see what can be done to avoid this impact while still getting the deductions you’re entitled to. For example, you may want to defer some expenses to the following year.
It also helps to be able to show that financial reserves, other assets or investments are on hand as a cushion in the event of a business downturn. And for those who have the time to plan to apply for a mortgage, strategize to keep outstanding debt as low as possible.
Self-employed applicants will need excellent credit – preferably at least a 700 score. Some can still get a mortgage loan if scores are lower, but interest rates will be higher as credit scores go down.
Many self-employed find themselves in a much better situation if there is a spouse or co-applicant with a separate, regular W2 income.
Getting a mortgage for anyone these days is considerably tougher than it was in the past. But with good credit and proper documentation, it can be done. Banks still need to lend and make money – they’re just being more cautious about how they do it these days.
Note: I can still do loans with no income verification if you have sufficient equity in your home. Call me if you need details on a specific situation.
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{ 10 comments… read them below or add one }
I was told by another bank that we could not use our tax returns. Why can some people use them and some people not can?
@Randall – Very unusual Randall. Maybe more than unusual. These days, tax returns are “THE” way to verify income for the self-employed. Used to be a time when many lenders would use bank statements for verification. But I’ve heard of no reason why tax returns would flat out not be accepted. I can only think that perhaps that bank/lender did not do mortgages for the self-employed. Because if they are not accepting any proof of income, then the mortgage can’t be processed. How were you supposed to verify income? Fill me in with more detail.
That’s what we did. Tried to used my wife’s job and pay but weren’t able to get the mortgage we needed because her income wasn’t high enough. This was last summer. I waited too long to try again and since then my credit score went to 635. Now I’m told nothing can be done because of that. Is that true?
we eventually got a mortgage. we had to provide p&l statements too. there was much more stuff requested than for our last mortgage in 2005 but was about we expected. we got the loan and that was most important. anybody who’s self employed better have their paperwork ducks all in a nice row or else forget about it.
glad to read this. tried everything else & i need mortgage with the no income program. i’ll call you to discuss.
How much equity is needed for no income verification? Is the rate higher?
@ M. T. Collier – Yes, the rate is a bit higher for no income verification loans. This is not new. These loans are more risky and therefore carry a higher rate; but the difference can be as little as .25% greater than the rate for income verified loans. Not much at all. The equity required will vary from 30% to 40%. Call me if you have questions about a specific situation.
assuming we qualify for the loan in terms of having the income for the payment, do we still have to show we have extra money in a savings or checking account? if so, how much would that need to be? thanks for help.
@ Great Nick – Yes, additional assets may be required in order to qualify. Assets can be held in any form that permits withdrawals. Total assets required will vary with each loan.
New Jersey Mortgage Blog | Carol Lloyd – First Hallmark Mortgage
my wife is employed with a regular 9 to 5 and i have a small contracting business. she should be able to qualify for a mortgage with her income. can we apply in her name? her credit is also better.