Moss Beach

The San Mateo community has a spirit of entrepenuership which helps define our culture. For many, owning their own business and being their own boss sounds like a dream come true. However, if you are self employed you most likely know that owning your own business can be stressful and overwhelming at times.

But while being a business owner is a great deal of work, it is part of the American dream. The downside is that if you are in the market to purchase a new home in San Mateo and are planning on applying for a loan based on your self-employment income, you may be faced with some challenges you weren’t expecting.

Unfortunately the current economic situation has forced many lenders to tighten their requirements and that may make getting a loan more difficult than in past years for self employed home buyers. Here’s the score on what today’s lenders are looking for.

1. Forget about a ‘stated income’ mortgage – you are going to need tax documents, bank records and at least a two year history of business stability for a lender to even consider your application. Even if you are just branching out in the same kind of business that you have done for years, expect tight requirements and nearly perfect credit to move forward with qualifying.

2. Do your homework – research the banks or mortgage lenders you want to approach and find out exactly what paperwork and documentation they require to process a loan for a self-employed borrower. Spend time putting your documents together carefully and thoroughly in advance of your application.

3. Look for lenders who have a track record of accepting self-employed borrowers and try to meet with them in person to review your paperwork and find the right kind of loan package for your needs and situation.

4. Take a break from write-offs for a couple of years – those tax deductions help with your disposable income, but they also take down your gross income level. Lenders want to see a good debt-to-income ratio,not how clever you are about expensing your income away. Direct any questions about how to manage your expenses and write-offs to your CPA.

5. Stay liquid – build your bank account so that lenders can see your ability to make payments even if you have seasonal or other fluctuations in your income levels month to month or year to year. A solid savings plan and liquid assets can be helpful in getting your application approved.

Finally, if you have a strong co-signer, one with great finances and a steady income, you may be able to overcome your lender’s concerns and hesitation when it comes to considering the source and level of your personal income.

Are you self employed and have more questions? Contact me for more information, I would be happy to help!

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