Having a flexible work schedule is pretty much the norm for people who own their own business or are independent contractors. Sometimes the income for one month is huge while other months can be small or nil. Lenders understand this, which is why it can be difficult to obtain a mortgage with the strict underwriting guidelines currently in place.
Fannie Mae, a government service agency, defines a self-employed person as any individual who has a 25% or greater ownership interest in a business. Data from StatisticsBrain has Colorado as the 10th largest population of self-employed people. Overall, around 8% of the states’ population is self-employed. Check with the Colorado Dept. of Labor and Statistics for current information.
Fannie Mae not too long ago updated their rules to allow a person with a self-employment work history of just 1-to-2 years in specific circumstances to be considered for a mortgage. In the past, borrowers were required to have a 24-month history of self-employment income.
Many loan experts claim that self-employed borrowers may qualify for any mortgage if they are working with the right loan advisor. The down payment can be as low as 3 percent down with a conventional loan or 5-percent down using a jumbo mortgage. As of January, 2018, a jumbo mortgage is a home loan over $529,000 in Greater Denver and above $578,000 in Boulder county.
Here are a couple of examples of diligent self-employed borrowers who applied for and got a home loan. They are now comfortably living in their homes.
25-percent down payment with no-tax returns
Dan Wright was discouraged by the home buying process, especially since he hasn’t bought a home since the early 2000s. With all the stories of high credit score people being turned away, he didn’t really think his chances were so great.
But this franchise owner is now enjoying living in a home that allows him to have a specially made home office which will save him $2500 a month from renting office space.
“I moved from a smaller home to this one because of the location and lowering my monthly bills substantially.”
He ended up putting down a good-sized down payment. The no-tax-return loan he obtained required a minimum down payment of 20 percent.
“The process was fairly smooth. With my tax write-offs, no way would I have been approved.” he said.
Real estate agent finally gets to refinance their house with a conventional loan
For a few years, Suzanne has been a licensed agent that helps sellers stage their home for the maximum selling price. Her husband is a local appraiser and they both had significant write-offs that apparently did not help them qualify with a traditional bank.
“Lenders will review your tax returns for the last two years and see all of our deductions. Our tax returns often don’t accurately show our take-home pay because of tax deductions,” she said.
“For a self-employed person, the loan process was becoming more challenging, she says. ”
“Overall, the process was smooth because he knew what he was doing and asked us question that other loan officers didn’t. ”
She advises anyone who is self-employed and looking to buy a home to have a lender review your tax returns before you look at homes. By doing this, it can save everyone involved from any wasted time.