If you are self-employed or working on a 1099 basis a mortgage may seem daunting. The good news is there are different kinds of lenders. Some lenders will take a cut-and-dry approach to making a loan. Either you meet their criteria or you are ineligible.
The self-employed may have issues around irregular income or too little income after tax deductions. Additionally, the lender will be looking for a high credit score, cash reserves and many other hurdles you have to over come to qualify for their loan. Some of these criteria are set by the loan program (such as Fannie Mae or Freddie Mac) and others are added by the lender. In spite of all this, some business owners are still able to qualify for a mortgage. While this is wonderful for the small percentage who qualify, it still leaves a very large portion of self-employed people looking for a way to finance a home.
To address this unmet demand, there are loans that make sense from lenders who are much more flexible. The key in these situations is to have offsets or compensating factors. For example, if you have many deductions and show little as your bottom line income, you may still have significant savings. This will be considered an off-set. Or perhaps you have a 401k that you have been contributing to for years. Even though you can’t touch it without tax consequences, the funds are still considered in your overall picture as a borrower.
To get the best rate in these circumstances, you will need very good credit (FICO score). However, your score alone will not disqualify you from a loan. In fact, there are loans for people who have middling credit scores while coming back from a setback (e.g. divorce, bankruptcy, foreclosure). Their current income may be fine but their score simply does not meet the high standards of the big banks. Here too, there is a solution. For a slightly higher interest rate, this lender is willing to take on the added risk of someone who has less than perfect credit. You will have to explain what caused the setback and how that is no longer an issue. The loan will take all of this into account in qualifying you.
To discuss your situation and explore all options for the self-employed including 1099 work, contact me at 760 622 5087 or [email protected] I look forward to helping you get the right loan for you.