With tightened regulations regarding mortgage origination, it seems like getting a mortgage is far from a slam dunk especially if you are self-employed. But don’t despair, help is available. With more people consulting mortgage brokers to explore their options, light can seen be at the end of the tunnel.
So what is the problem to begin with? For tax benefit reasons: when you have a skilled accountant do your taxes, declared income could be far lower then what it traditionally takes to get approved for a mortgage that suits your requirements. Naturally as a savvy business owner you decide to take advantage of every tax break available, but does that mean you shouldn’t have the same ability to purchase a home as everyone else? Can something be done to level the playing field?
Certainly, with the help of the following three options:
- 15% Add Back
- N.I.Q. (Non Income Qualifier)
- Stated Income Loan
Let’s have a closer look. When a mortgage broker is preparing your application they are able to provide assistance in a few key areas. First, they can add 15% on top of your gross income because lenders realize you have most likely written off a substantial portion of your earnings. Currently, every dollar you earn qualifies you for approximately four and a half dollars in financing. Therefore the extra 15% may qualify you for the amount of loan you require (e.g. $100,000 gross income becomes $115,000 which would qualify you for approximately an extra $70,000 in financing).
The next option would be to go with a N.I.Q (Non Income Qualifier) where no proof of income is required. This form of equity lending is available to the self-employed through select financial institutions. It requires a 35% down payment. You may also have to verify some liquid assets to secure the loan. But if you don’t have this kind of funding available, there is still hope.
Another possibility is a Stated Income Loan. This is where you are able to state the amount of income you earn based on the industry you are in. The stated income will be derived from a database of “reasonable” income amounts for each business type. Your accountant will provide documentation to verify the business, as well 12-36 months worth of mortgage payments in liquid assets based on the amount of down payment you make. For this type of loan you will be required to put minimum 10% down.
Hopefully this provides a bit of insight. The policies are changing on what seems like a daily basis. It helps to have a mortgage broker guide the way, especially when in almost all cases it does not cost anything and they can quickly and effectively find a lender that fits.
This guest blog is written by Ron Zimbalatti, a Mortgage Broker at The Mortgage Group. Contact him at email@example.com to discuss any options that are right for you.