Forbrukslån: Refinancing a Housing Loan for Self-Employed Individuals

The United States of America is a country that commends and lauds its businesses, although people will not hear much encouragement coming from housing loan bankers. That is because self-employed individuals (SEIs) who usually have complicated tax forms, as well as show less monthly income compared to their corporate counterparts, may have various problems when it comes to qualifying for a traditional debenture or housing loan refi. But even unreliable bankers would have to agree that there are reasons why SEIs should consider becoming property owners to tap into their property’s equity.

Best case scenario

For people who work as workers of businesses or other institutions, documenting monthly incomes for mortgage applications is pretty straightforward – they only need to provide their recent pay stubs, as well as their W-2 tax statements for the last two years.

Click this site for info about W-2 forms.

But for some individuals who do not get W-2 or paychecks, who generate their own earnings, as well as pay themselves, it is a different story. People can contact their lending firm and find out what paperwork and documentation they will need before they can apply for a housing debenture.

These usually include their tax returns in the past two years, their current loss and profit statement, and investment and bank account statements. If they are refinancing their mortgages, they will also need to pay the remaining balance and info about their current housing debenture. If they have been self-employed for a long time and their earnings have been pretty steady, they need to be in excellent shape.

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Borrowers will generally be asked to provide documentation of their revenues through their tax returns in the past two years. They may also be asked to provide the tax return of their business, the profit and loss statements, as well as their balance sheets.

The monthly income can also be a significant factor, especially if the borrower is looking to refi to a shorter debenture term with higher monthly amortizations, like going from a thirty-year to a fifteen-year fixed-rate credit. A housing loan earning calculator can help individuals take into consideration their debt payments, earnings, and other liabilities, as well as the cost of their new debenture, to figure it all out.

Other essential factors that can affect the person’s ability to refi will be their credit score and the amount of their home equity. If they have less than 20% home equity, they may need to try to refi through the government’s Home Affordable Refi Program or HARP, but they can still do that as SEIs as long as they can provide the necessary documents for their income.

Click for details about HARP.

The paperwork and documentation trap

If the person’s earnings are irregular, it can present an issue in qualifying for a housing debenture. What lending firms will usually do is take the borrower’s total income in the past two years, then divide it by twenty-four to produce their monthly earnings for that cycle.

But if there is a huge difference in the person’s earnings between the twenty-four months, they may have a problem with their calculations. It may lean towards lower-earning years to be more confident that they will be able to make the monthly amortization.

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Another issue is that SEIs tend to take more tax deductions for business expenses compared to people with regular 9-5 jobs. While it can save people a lot of funds, it also minimizes the adjusted gross income they report on their tax forms – and that is the figure their lending firm will be looking at when approving a mortgage.

It does not matter if their effective earnings are a lot higher compared to that, and they could easily afford higher monthly amortizations – the lending firm is going to base their DTI or Debt-to-Income ratio on these figures, the same as they would for W-2 workers.

No documentation or stated income debentures

It is usually hard for SEIs to qualify for billigste forbrukslån (cheapest consumer loans) because of complicated documents needed and tax returns. In the past, non-salaried employees could choose low-doc or no-doc debentures. As a matter of fact, during the early 2000s, almost all individuals applying for loans could get what is called a stated income debenture, where proof of income is not required.

But with the tightening of loan credits that has been happening since the crash of the housing market in 2005-2008, no-doc or low-doc debentures practically disappeared as lending firms demanded strong proof of the borrower’s ability to pay the credit before approving a debenture.

Stated income credits have made a comeback recently, as financial institutions have recognized that SEIs who are looking for this kind of debentures usually have very good finances and are good credit risks. Some financial institutions now will approve loans without tax returns but rather brokerage or bank statements proving the borrower has enough assets to cover at least six months to one year of amortization.

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But the equity requirements are a lot stricter – people will need at least 30% home equity to refi this way – and the housing loan interest rates are a lot higher compared to what people would pay for a debenture qualified for in traditional ways. Borrowers will also need a good or excellent credit rating – at least 750.

New government rules

More recent guidelines when obtaining a stated income debenture are new government regulations under the borrowing reforms needed by financial institutions. Under these new guidelines, qualifying mortgages or QMs have been designed and are supposed to reflect housing loans where lending firms have thoroughly verified individuals’ ability to repay their loans. Lending institutions do not have to meet the qualifying mortgage standards on all loans they write, but those that don’t cannot be sold to Freddie Mac, Fannie Mae, or the Federal Housing Administration.