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Being self employed affect mortgage application?

How does being self employed affect mortgage application process and interest rates?
  • October 02 2011 - York Township
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Answers (10)

Interest rate absolutely not that has nothing to do with you being self employed!Being self employed predominately effect the amount of loan you can afford with your verified income Line 13 and line 31 on your schedule C add those together and that is what your base income for the year will be! Now take those numbers for 2009 & 2010 add them together, divide by 2 and that is your average yearly income! This ultimately determines if you can "afford" the loan! Or in mortgage banking talk your "ability to repay".Other than this being self employed just means more paperwork that must be submitted than a W2 employee!
*So an example is $40,000.00 a year verified taxable income average.
*40,000 divided by 12 = $3333.33 a month gross income,
*$3333.33 times .40 = $1333.33 available for debts (this is how you get DTI or debt to income ratio)
* Now on your credit report with all your credit cards & car payment, etc.. you have a total of $500.00 in debt payments! $1333.33 minus 500.00 = $833.33 left to pay for a home!
* Don't forget this has to include the taxes and insurance on your new home! So a $100,000.00 loan at a hypothetical 4% interest rate for a 30 year term means the homes principal and interest payment will by $477.42 this is without taxes and insurance.
* Now property taxes are $2000.00 a year and homeowners insurance is $600.00 a year, add these two numbers together and divide by 12 (for the months in a year) so your taxes and insurance a year would be $216.67 a month more to your payment (that way your taxes and insurance are always paid on your home this is called being "escrowed") so your total monthly payment on this hypothetical home would be $694.09 a month (this payment would pay for the loan, property taxes, and homeowners insurance) so you could afford this home on the income you have! 
  • March 29 2012
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Interest rate absolutely not that has nothing to do with you being self employed!
Being self employed predominately effect the amount of loan you can afford with your verified income Line 13 and line 31 on your schedule C add those together and that is what your base income for the year will be! Now take those numbers for 2009 & 2010 divide by 2 and that is your average yearly income! This ultimately determines if you can "afford" the loan! Or in mortgage banking talk your "ability to repay".
Other than this being self employed just means more paperwork that must be submitted than a W2 employee!
  • March 29 2012
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Yes, paperwork. When you apply for a mortgage - today more than ever it is paperwork, paperwork, paperwork. Unfortunately in your case it is more paperwork than most. This time of year your accountant will have to provide a certified financial statement - typical wording -
"I certifiy the following information is true and correct to the best of my knowledge and accurately reflects the current fiscal and monetary position of ________________(your company). This information is provided for the expressed purpose of providing interim financial disclosure for _____________(your name) to apply and recieve financial consideration for acquisition of funding. Then just normal - contact information. The typical 3 years of tax returns - I like asking for the third just in case I need to income average and I want to present more of an argument for higher income if I meet with a stubborn loan committee. As a self employed individual you are offering fiscal disclosure - of your company. You want to paint the perfect picture. Many smaller companies attempt to minimize income - but - remember depreciation adbacks - help. You need to have a good loan officer, lending group. Again as in many of my posts, I recommend a community banker - he/she knows will know how to read financial disclosures - Why? Becuase most of us are small. You question - "will it affect my mortgage." Yes - but just paperwork. Finding the loan officer and professional that understands financial disclosure - will be the best partnership. I have many 3 generation self-employed clients. You will send your children to your lending partner. Good luck! Your copier, scanner will be your friend :)
  • October 07 2011
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underwriters are going to look at the past 2 years tax returns and look at your schedule C's to take a 2 year average.  

Just being self employed does not change anything on your loan.

However, a benefit of being self employed is the ability to write off expenses that a traditional w2 employee is not able to do. If you write off a lot of expenses, then your adjusted gross income is going to be lower. The underwriters will look at the adjusted gross income to qualify you.   Also if there is a drop from 2009 to 2010, the underwriter will want to know why and may feel uncomfortable approving the loan if they feel this drop in income trend will continue.

By the way... lighten up Sharon, Norm did post relevant content. Nothing he said was misguiding the client. Please stick to answering questions and not bashing other posters.   There are plenty of other websites you can visit if you want to go on a message board and bash other people.
  • October 03 2011
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Doesn't matter if you pay yourself with a W-2 or not, if you are self-employed the underwriter will take at keast a 2 year average of your income based on your reported income.  There is a process that the underwriter goes through to determine your income, such as adding back certain items such as depreciation.  Best advice is to get together with a loan officer and review your tax returns to see what income he will be able to use.
  • October 03 2011
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Ms Lewis, When I don't know the answer I don't post one; and often I don't post one when I do know the answer because someone else has already answered correctly. This is unlike the sign pounders that just like to hear the sound of their voice.


so, let's see how relevant it was....

The question? "How does self employed affect......and interest rates"

The answer. "It, being self employed, doesn't affect rates."

Mr Stein answered half the questions correctly and I answered the other half. You, of course, are superfluous.


  • October 03 2011
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Norm
if you don't know the answer don't misguide the public. Please use relevant content here.
  • October 03 2011
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there is no self employment adjustment to rates. The impact on rate due to the self employed piece is zip, nada, none....

  • October 03 2011
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Depends what you claim on your taxes because that is what lenders look at.
  • October 03 2011
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If you pay yourself a salary and have W2 it should not make a difference assuming you pay yourself regularily. Min 2 years are needed.

Each lender is slightly different.
  • October 02 2011
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