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Self Employment Mortgage Issues

970 Views | 5 Replies | Last: 6 yr ago by Sooner Born
MAS444
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AG
I'm self employed and am probably going to be buying a new home in 1 - 2 years. I just want to try to get my ducks in a row as soon as possible, as I understand being self- employed presents its own set of problems with mortgage qualification. I'm hoping some of you mortgage experts can provide a little guidance.

I've owned my own business for 15 years and my annual income fluctuates greatly...and I mean greatly. In fact, every other year is a good/not so good year. It's always been that way and is just kind of the nature of my business as it takes a long time (years sometimes) for things to pay off. It has nothing to with the amount of work/business I have, as that has remained relatively constant.

My understanding is that banks will calculate "income" for purposes of qualification based on last 2 years AGI. Unless...the last year was a "down" year, and then they will only use the last year. So if the last year was a high year, they average it with the previous lower year. But if last year was a low year, they won't include the previous higher year. Is this about right?

Are there any banks/lenders that will use more than 2 years? Is there any other way to get lenders to look beyond the 2 year rule?

Any other options, thoughts, etc.?

If it matters...we'd be looking at a jumbo loan with 25% - 35% down.
SteveBott
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AG
All of your post on income is correct.

No they will not use more the 2 years.

I will PM a solution you could use.

Bottom line is your CPA is doing his job by limiting taxes and that hurts my income. They go low and I want high.
MAS444
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AG
That's frustrating. I understand the rationale in theory...but it sucks that there's no flexibility for someone that has a long, consistent history of earnings (although up and down...but consistently so).
Jay@AgsReward.com
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AG
Sure, there are lender's that will look at it in a common sense way. But, they would be "portfolio" lenders meaning they are going to keep the loans on their own books. A lot of jumbo loans are portfolio loans, but the "best" rates and terms are often originated to securitize or at least eventually have that choice therefore they tend to be in the box like conventional loans with an often time even more restrictive box.

But, a portfolio lender that plans on keeping the loan on their books that can get their head around your business might go back a few years to see the cycle. We makes these kind of lending decisions with our portfolio assuming everything else is top notch. Common sense is the pro. The con is because the loan has to be held on the lender's portfolio the rates/terms (ie higher rates and/or ARMs instead of fixed) are not as good because the note holder actually has to make money on the loan not just the sale.
MAS444
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AG
Thanks Jay and Steve.
SteveBott
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AG
Welcome. Jay is describing the alternative loan I spoke to you and did a good job explaining your options.
Sooner Born
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THis is totally speculative as I don't know anything about your business or situation. To me, it sound like your business is currently on a cash basis but would be better served being on an accrual basis. You could take even distributions from your business and smooth your revenue so your AGI would remain relatively constant. Just an idea...
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