Self-employment can be a viable option for all those who have lost their jobs due to the recent economic crisis. The best part of being self employed is that you will be your own boss and you will be able to take your own decisions. However, there are certain dis-advantages of being self employed. Self-employment becomes a huge problem when you apply for a mortgage.
What are the main problems faced by self employed while getting a loan?
The 2 main problems faced by the self-employed people while getting qualified for a mortgage are:
Proving income: It is quite important to prove your income with your tax returns when you apply for a mortgage. Self-employed people won’t be able to provide this proof.
Declining income: Due to the severe economic crisis, income has declined for everyone. The self-employed people have been badly affected due to this. Though now some of them have stabilized income, the lender will take into consideration the average of two years of tax returns. It will show reduced income for the self employed.
Are stated income loans making a comeback?
Stated income loans are making a comeback in the secondary market. But not all can qualify for this loan.
Who will be eligible for stated income loans?
It will be available for only those borrowers who have credit scores above 720, a down payment of 30% or more and around 6 months of cash reserves to cover all monthly obligations. They'll have to somehow prove that they'll be able to pay the loan.
How can you qualify for stated income loans?
In order to get stated income loans, self-employed borrowers should complete IRS Form 4506-T. This will let the lenders request tax transcripts from the IRS. However, they will have to wait till the tax returns have been recorded by the IRS. The lenders will have to receive them directly from the IRS rather than from borrowers.
Apart from that, borrowers will have to prove that their business exists. Two years of tax returns may satisfy some of the lenders. Some of the other documents which can qualify as a proof include:
- Statement from an accountant
- Business license
- Copies of 1099 income statements
Self-employed people should also keep in mind that very good credit scores along with lower debt to income ratios will increase their chances in order to qualify for a stated income loan.