Self-employed, commissioned, or others who don’t have a regular paycheck usually have a harder time getting a loan. Sharply honed skills getting the most out of Tax Schedule C becomes a two-edged sword, because the lender looks at the bottom line after all the business expenses are deducted. The depreciation and home office expenses that look so good on April 15 now slice away on the mortgage you can qualify for.
The conforming mortgage system is set up to process a couple of years of tax returns or W-2 forms, one or two recent pay stubs showing year-to-date, and a list of account numbers. If the data fits neatly in all the round holes, then approval follows. But, anything outside this conforming profile triggers a yellow penalty flag floating to the turf. Self-employed Aaron and Sarah found this out when they outgrew their home office and wanted to move up to a bigger home. Although their nine-year-old business was successful and had a great track record, their tax returns ruled out a conventional mortgage. Aaron and Sarah’s mortgage broker knew several investors who bought stated income or nonconforming low/no doc loans. That’s mortgage-speak for loans that require the borrower to submit few or no financial documents.
These types of loans are made almost solely on the basis of the credit report. Sometimes the investor wants to see a couple of years of tax returns to make sure you’re real and that the loan request is within the bounds of reality.
Mortgage investors have learned that self-employed buyers with good credit and a business track record work extra hard to protect their credit. As a result, there’s an active and competitive market for stated income mortgages.
In Aaron and Sarah’s case, their credit was excellent and their business was seasoned, so they were able to get a $225,000 loan with 10 percent down.
Their interest rate was 0.75 percent higher than a conforming Fannie Mae rate, which translated into $110.36 more a month. Still, Aaron and Sarah were happy with their new loan, and they were able to close in less than two weeks because there wasn’t a lot of paperwork to process.
The bottom line on low/no doc loans is that they’re credit driven and have higher interest rates to balance out the investor’s greater risk. They’re a great way to go if you’re selfemployed, on straight commission, or want a quick, streamlined loan.
Down payments on these programs range from zero down to 25 percent or more and interest rates are typically 0.75 to 2 percent higher than par.
The conforming mortgage system is set up to process a couple of years of tax returns or W-2 forms, one or two recent pay stubs showing year-to-date, and a list of account numbers. If the data fits neatly in all the round holes, then approval follows. But, anything outside this conforming profile triggers a yellow penalty flag floating to the turf. Self-employed Aaron and Sarah found this out when they outgrew their home office and wanted to move up to a bigger home. Although their nine-year-old business was successful and had a great track record, their tax returns ruled out a conventional mortgage. Aaron and Sarah’s mortgage broker knew several investors who bought stated income or nonconforming low/no doc loans. That’s mortgage-speak for loans that require the borrower to submit few or no financial documents.
These types of loans are made almost solely on the basis of the credit report. Sometimes the investor wants to see a couple of years of tax returns to make sure you’re real and that the loan request is within the bounds of reality.
Mortgage investors have learned that self-employed buyers with good credit and a business track record work extra hard to protect their credit. As a result, there’s an active and competitive market for stated income mortgages.
In Aaron and Sarah’s case, their credit was excellent and their business was seasoned, so they were able to get a $225,000 loan with 10 percent down.
Their interest rate was 0.75 percent higher than a conforming Fannie Mae rate, which translated into $110.36 more a month. Still, Aaron and Sarah were happy with their new loan, and they were able to close in less than two weeks because there wasn’t a lot of paperwork to process.
The bottom line on low/no doc loans is that they’re credit driven and have higher interest rates to balance out the investor’s greater risk. They’re a great way to go if you’re selfemployed, on straight commission, or want a quick, streamlined loan.
Down payments on these programs range from zero down to 25 percent or more and interest rates are typically 0.75 to 2 percent higher than par.
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