Home Loans
What Are The Special Mortgage Challenges for Self Employed Borrowers?
(presented by www.refinance-refinance.net - mortgage lenders)
By Ben Afzal
Basics
Mortgage lenders classify borrowers in two different ways:
- wage earners
- self-employed
Wage earners are much easier to analyze for a mortgage lender. They usually can provide paystubs, employment documentation, and tax returns. Their income stream is easier for a mortgage lender to understand.
A self-employed borrower is often much more difficult to understand for a mortgage lender. Challenges may include:
- stability of earnings
- track record in business
- complex tax records
- unclear assets
Stability Of Earnings
The first issue is stability of earnings. A self-employed borrower may not have constant income. Earnings will often fluctuate depending on how their business is going.
Track Record In Business
Lenders usually like to see a self-employed borrower have at least a 2 years track record in their business. This usually shows the lender that the person is capable of generating income in their new self-employed work. They usually also like to see someone who is self-employed in their line of work. If you have years of experience as a carpenter but open up a coffee shop this is a major switch and a mortgage lender will have to analyze this.
Self-employed borrowers often have complicated tax returns. This is partly the result of a complex tax code and partly because most self-employed borrowers are thorough in using all available tax deductions.
Unclear Assets
The final issue is unclear assets. Borrower assets may be intermingled in business accounts with other business partners. Deposits in a business bank account may represent revenue but not necessarily the final income or net profit a business generates.
Additional Steps
Make sure that when you apply for a mortgage you clearly state that you are self-employed up front. The self-employed usually have nearly all the same loan options as wage earners.
You may need to prepare your do!
cumentat
ion in advance - such as making copies of business licenses, permits, and financial records.
