With the housing bust in recent years, no thanks to what economists are calling the United States’ Great Recession, securing approval for a mortgage for self-employed individuals is a real challenge. By the way, another name for this type of mortgage is Alt-A mortgage.
In the years prior to the Great recession, the Alt-A mortgages were the most common, and often the easiest and fastest, ways for the self-employed sector to
secure home loans. Basically, the mortgage banker took your word that you earned a particular amount of money, more so if you have an account with them or you can present proof of income like tax returns on business. This was the time when housing values were on the rise and mortgage for self-employed individuals were not too big a risk to take.
When the economy crashed, as it has today, the housing bubble made its appearance, many self-employed individuals were unable to pay their Alt-A mortgages, and most of the banks just stopped offering them because of the high risks involved. In fact, the risk was visible because the Alt-A loans experienced one of the highest rates of defaults and foreclosures.
Don’t despair, however, as there are things that you can to still secure approval for your mortgage for self-employed contract.
Show Sufficient Proof of Income
Nowadays, bankers will not take your word for it. You have to show sufficient proof of income in both quality and quantity. This holds true whether you are applying for a new mortgage or refinancing your existing mortgage.
First, you should file your income tax returns for two consecutive years prior to your mortgage application. Of course, your declared income from your business must be sufficient to cover the monthly amortizations plus any other costs of the mortgage from the application fees to the closing fees. If you can show proof of good profits for as long as ten years, even when the recession is in full swing, then you have better chances at getting approval for your mortgage for self-employed individuals.
Second, you may also need to show your sound business plans. This way, you can provide assurance that you have ways to make sure that your business stays in the black and, hence, you can afford to pay your monthly amortizations. Of course, you must also present proof of your past and present financial records. No worry on the trust part as confidentiality is the code of the day.
Show Financial Reserves
Mortgage bankers also want to know what your plans are if and when your business falls into the red for an extended period of time. Well, you should show proof of your financial reserves to hurry your mortgage for self-employed contract on its path of approval.
If you have investments, show proof. If your husband has a stable job from which the monthly amortizations can be deducted in case of your default, then show proof. If you have good credit lines that will allow you to temporarily take out money for payment of the amortization, then show proof. It’s very simple but very effective indeed.
Now, if you hired a mortgage broker, you will usually be provided with advice on the best ways to secure a contract for a mortgage for self-employed individuals. Thus, consider hiring one just so you have professionals at your beck and call, so to speak.
By Madeline Samuels