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Refinancing for the Self Employed

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There are many advantages to being self-employed; however, when it comes to refinancing your mortgage being self-employed could make qualifying difficult. You could consider a no-doc or low-doc mortgage where you do not have to verify income. The problem with these types of mortgages is that they typically come at a premium interest rate.

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When you are qualifying for a mortgage loan, your lender will typically want to see two years of income history. Some will even require three years. You can document your self-employment income using bank statements or tax returns.

There are mortgage lenders that will accept anywhere from one to two years of bank statements to verify your income. This practice of income verification is becoming more common as lenders become more flexible. Using bank statements will often allow you to document more income than you would be able to using tax returns. Lenders will often adjust the income from your business tax returns and remove certain categories of income.

If you have trouble proving your income a no-doc loan may be your only option to secure financing. No-doc loans are very common and allow homeowners to borrow without documenting their income. Applying for a no-doc loan will force the lender to rely heavily on your credit rating, so qualifying could be more difficult. Keep in mind that no-doc and low-doc loans come at a higher interest rate because the risk to the lender is higher.

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{ 2 comments… read them below or add one }

Karen Sennikoff June 25, 2009 at 2:10 am

How much higher is the interest rates on no doc refinance loans for the self employed? My husband is self employed and we would like to try and refinance our mortgage so we can get our taxes and insurance rolled into the new mortgage now.

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Robert June 25, 2009 at 5:30 am

Self-employed homeowners are running into brick walls these days. I get a lot of questions regarding stated income mortgages and to the best of my knowledge, lenders are simply not offering them anymore.

What can self-employed homeowners do if you were always told you had to go with a stated income mortgage?

If you have good credit, equity in your home and assets such as cash or investments you should be able to qualify for conventional mortgage refinancing. That means you should provide tax returns just like a traditional employee would submit paystubs for mortgage approval. I understand the goal for most self-employed individuals is to write off as much of your income for tax purposes as possible; however, it’s possible you could have enough income documented to qualify.

Start with your adjusted gross income from your tax returns for the last two years, add that together, take the total and divide by 24 months. That gives you the monthly average and a good idea what it will take to get you qualified.

You’d be surprised by the number self-employed homeowners I’ve seen qualify for traditional mortgage loans even though their debt-to-income ratio is high.

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