Many people have dreams of becoming their own bosses. If you are someone that has been able to make this dream a reality, however, you may find that it is difficult to obtain a mortgage loan. This is mostly because you don't have pay stubs or W-2 forms to verify your income, which can make it difficult to demonstrate your ability to repay a loan. Therefore, the bank has to rely upon your income tax paperwork in order to determine your income. The fact that self-employment earnings can vary greatly from year to year is also of concern to many lenders because it is difficult to predict whether or not your income will be steady from year to year.
The fact that you are self-employed does not automatically mean that you will be turned town for a loan. Rather, you may need to produce a little more paperwork or go through a few more hurdles in order to get approved. For example, most lenders will want to see at least two or three year's worth of income tax forms. They may also require seeing your monthly business expense and revenue statements from your current fiscal year.
Most lenders will also require that you put down at least 20% toward the purchase of the home. In addition, they are likely to scrutinize your credit much more than someone that is not self-employed. If you have excellent credit, getting a loan with a reasonable interest rate should not be a problem. If you have poor credit, on the other hand, you might have to pay a higher interest rate or pay more fees.
If you are self-employed but have only been in small business two years or less, you might have even more difficulty acquiring a loan. In this case, it might be helpful to look into getting a Stated Income Mortgage Loan or an Interest Only Mortgage Loan.
With a stated interest mortgage loan, you do not have to come up with all of the same paperwork as with a self-employed mortgage loan. Rather, you simply state what your monthly income is and confirm that it is accurate. Since this type of loan does not require taking an extensive look at your income and other documentation, however, there are generally higher fees associated with this loan than with a standard loan for business owners.
Another option is the interest only mortgage loan. With these loans, you pay only toward the interest when you make your monthly payment. If you choose to pay extra each month, that money will be applied toward your principle. With these loans, your interest rates are adjustable, which means they can go up or down during the lifetime of your loan. At the same time, the monthly payments tend to be lower, which means you have a little bit of flexibility when it comes to how much you send each month. When business is going well, you can send extra. When things are not going quite as well, you can simply pay the minimum required.
Business owners have their own special circumstances when it comes to acquiring a mortgage. Although it might take a little extra legwork to find the lender that is best for you, it is worth the effort because it can save you a significant amount of money in the long run. If you need help sorting through your many available options, contact FiveStarHomeMortgages today. We will be happy to help you find the perfect loan program for you and your business!