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Self Employed Mortgage Headache

For a lot of people owning your own business is a dream, and the benefits are countless. You get to control your own destiny, make our own hours, and all of your labors and efforts truly benefit you and your family. It’s not all sunshine and roses, however, you also feel like the weight of the world is on your shoulders at times, and there’s nothing more humbling than having other people depending on you for their paycheck. You can’t just call in sick, and when you do you always know when you’re lying. One of the biggest benefits of being self-employed is “write-offs”, you and your CPA can write off anything and everything that is remotely related to your business expenses. The vast majority of people who are self-employed take advantage of every tax loophole known to man (I know I do) and are able to get their taxable income down by 50% to 75%. What’s not to love, we all hate paying taxes and very few people I know ever think they should be paying more.

 

I’ve been self-employed for 20 years now and I can tell you that the pros definitely outweigh the cons most of the time. The only time that I feel like the world is against me is when I personally apply for a mortgage. Just because I own a mortgage company doesn’t make me immune to the standard underwriting guidelines, like you I’m required to present my two most recent business and personal tax returns. Every traditional program we offer calculates self-employed income the same way. We add the adjusted gross taxable income on the two most recent personal returns and they divide by 24 months, which gives us a two-year monthly average. If your most recent return is less than the previous return, they take a more conservative approach and they divide it by 12 months. There’re always things we can add back in like business miles, depreciation, depletion and carry over losses, but it’s seldom enough to qualify for the home you really want unless you plan ahead.

 

When it’s time to buy your first house or if your family is growing and needs something bigger with better schools, you need to plan ahead. (as much as 2 years ahead).  This is where a good loan officer can come in handy, we can look at your current debt load and the estimated payments on the type of home you are looking for and back into how much income you’ll need to support that debt load. We’ve done this countless times with our self-employed borrowers and when they listen, they are all pleasantly surprised.

It’s back (Kind of)

In the good old days (1995 to 2008) we had a program called SIVA (stated income verified assets) that allowed business owners to present the last 12- or 24-months bank statements. The underwriter would look at the deposits and expenses and evaluate the cash flow needed to service the debt. Toward the end of the lunacy (2006 to 2008), Country Wide mortgage had a program called SISA (stated income stated assets) this would allow the borrower to state what his or her monthly income was and we weren’t even required to verify assets (I know it sounds insane). The bank statement program is back for business owners who’ve owned their business for at least 2 years and the guidelines are exactly the same as the original program. We’ve signed up with a couple of these privately-owned investors and we’ve closed several of these loans.  This program comes with a higher rate (typically 1% to 1.50% higher than a conventional mortgage) and requires at least 10% down. This is a complicated product that requires special training but we are closing this type of loan on a monthly basis. If you’ve been sitting on the sidelines since the mortgage meltdown it’s time to put on your helmet and get in the game.  Call Rock Mortgage today at 832-230-3067 or go to www.rockmtg.com