Self employed business owners are becoming the biggest demographic of home buyers within the past few years. Business owners tend to have larger incomes and more assets than traditional wage earning buyers, yet there are still several obstacles for them to obtain a mortgage.
Many lenders require self employed buyers to put down larger down payments and charge them higher interest rates than a wage earning buyer. Just to clarify, a wage earning buyer is someone that gets a paystub weekly and a w-2 at the end of the year from an employer.
Lenders tend to look at self employed buyers as "risky" because at anytime their business may cease or earnings may fluctuate. But with rising housing prices, stagnant wages, and lack of employment stability from corporations, self employed buyers are not looking as risky compared to wage earning buyers; and they have the income to buy these higher home prices.
Mortgage companies are now coming up with competitive loan programs for self employed buyers and they are looking at them as a crucial demographic to survive in the 2023 home buying cycle. If you are a self employed buyer, here are some things you need to know before you make the leap into buying your next home:
Find the Right Lender - You would want to go to a mortgage lender that specializes in originating loans for self employed home buyers. FHA and Conventional loans tend to favor w-2 wage earning buyers because they look for paystubs and tax returns which may hurt a self employed buyer. A NON QM Program is good because they use 12 months worth of bank statements to determine income in lieu of paystubs and tax returns.
Organize Your Paperwork - If you do happen to go the FHA or Conventional route, make sure you have both your personal and business tax returns filed and up to date. All lenders will require this. Self Employed Business Owners tend to take a lot of deductions on their tax returns and lenders will go with the net bottom line. This will reduce the amount of income you can provide relevant to your debt. However, with a NON QM Program, the lender will go with your last 12 months business and personal bank statements and they will look at your total deposits. Be prepared to have all these bank statements available
Have Your Down Payment Ready - Most NON QM Programs for self employed buyers will require anywhere from 15 to 30% down. There are no specific FHA programs for self employed buyers, but if you have a co-signor with a wage earning job, you will be able to be qualified for the FHA program.
Carl Agard is the Publisher and Editor in Chief of Boss XL Magazine and the Author of the Book "Financially Surviving COVID19 (Finding Gems in the Real Estate Market)"
