Step 1: Income
In most respects, this is the most critical
aspect of your financial profile. The lender will be looking to verify the
stability of your income, in addition to how much you earn.
We need to review, but
maybe won’t use everything, send in the following documentation:
- Complete personal income tax
returns for the two most recent tax years, complete with all schedules
Your IRS 2019 2018 with all schedules and page two signed
- If your business operates as a
corporation or a partnership, we may also require complete business income
tax returns for the past two years. Therefore, send me the LLC, S Corp or
any and all other Federal Returns for the past two years filings
- This is not something you may
have on paper but get started preparing a year to date profit and loss
statement.
- Later we may also ask for proof
that you have an operating business and how you bring in clients. The URL
of your business website might suffice or a copy of a business license, or
a written statement from a CPA confirming that you have been in business
for the past two years.
With this information we might likely average
your business income for the past two years (total net income divided by 24
months), but we might only need the most recent year. I won’t send in the whole
novel, I wait to verify what Underwriting must have…
Income evaluation is the major criteria that
makes qualifying for a mortgage as a self-employed borrower more difficult than
it is for employed borrowers.
Step 2: Credit
A
credit score over 720 will be a big advantage, but there are methods to raise
the score such as paying down high balance cards to less than sixty percent of
the line. DO NOT close any accounts, this will hurt the score.
.
Step 3: Assets and down payment
The amount of cash for down payment is
also a more important factor with the self-employed. While salaried borrowers
might be able get by with a down payment of three or five percent, lenders
typically look for larger down payments from the self-employed.
Step 4: Debt-to-income ratio (DTI)
This is a mortgage industry term that
describes the formula used to determine that your income is sufficient for the
loan you’re applying for.
There are actually two ratios:
Housing ratio
That’s your new monthly house payment, divided
by your stable monthly income.
If your stable monthly income is $6,000, in
the new house payment will be $1,500, your housing DTI will be 25 percent
($1,500 divided by $6,000).
Your new monthly housing payment includes the
new mortgage payment, plus monthly allocations for property taxes, homeowner’s
insurance, mortgage insurance, flood or earthquake insurance, or homeowner’s
association dues. It does not include utility payments.
Total debt DTI
If your income on the taxes is net zero or negative we may be
able to use the deposits in ONE bank account over the past twelve or twenty
four months.
Let’s talk about the options to get you the best home loan with
the lowest monthly payment!
C G
(949) 784-9699
NMLS 324982
