This is a subject that has been biting the self employed. Do you want to buy a home? Then you have to show that you actually earn money. Mary has a little story that affects a lot of people. Us The entrepreneurs.
We are all happy to have buyers when we get them. All buyers are equal but some are more equal than others. I have a buyer who is self-employed. He owns a successful business and does quite well income wise. However, he writes off his income to the point that he is making below the poverty level. This is fine for his taxes, not so good for qualifying for a mortgage.
My husband is a mortgage lender and took a look at the tax returns. This individual is not going to qualify for a car much less a home based on his tax returns. I just wonder what people are thinking these days when it comes to getting a mortgage. He told my husband he wanted a stated income loan. Well we are about 2 or so years too late for that one. I just hate it that a person with great income is unable to buy a home due to how he does his taxes. Maybe he will change the way he pays himself but that does not help anytime soon. It is frustrating trying to help self employed folks get into a home these days. Very few of them show enough income to qualify.
Boy isn't that the truth! Unfortunately, as self employed people, we have to write off as many expenses as possible to reduce taxes due. However, there is a balance that is hard to meet.
That is a problem in many states which is a reason why values are where they are. If you take all self employed people out of the buying pool, then values are going to drop.
However, there are places where stated income loans ARE available. The northeast for example. 70% LTV for self employed borrowers. Rates between 5% and 6% depending upon the program and loan amount.
Yes Tere, it is very unfortunate that the self employed are not always able to purchase a home even though they have a successful business. The loans that were originally designed for this type of borrower became so abused by borrowers that were not qualified that they were taken away from everyone. It would be nice if some of the Alt A programs designed for successful business owners and independent contractors with decent credit would come back. It would just need to be strictly limited and not expanded to include people that barely qualify for lunch let alone a mortgage. We used to have the bank statement loans and that was a good way to document cash flow, but it was also abused and dissapeared. Aw!!! the good old days.
Thanks for the interesting post today.
Patricia
I am self employeed and can get a loan. Why? Because I don't cheat on my taxes! Really people, you can't have your cake and eat it too. I fully agree with writing off legitimate business expenses. But if you are writing your income down so low that your profit is showing at poverty level, and all your expenses were legitimate business expenses, there is no profit left to buy you a house or anything else.
Everyone else in America has to pay taxes on the money they earn. Why should the self employeed be any different? (I tell the hair stylists who work for me and don't want to claim their tips the same thing.) Pay your taxes, grow your business, and reap your rewards.