How To Qualify For A Refinanced Mortgage When You Are Self-Employed
Refinancing can lower your mortgage payments, but if you have become self-employed recently, you may find it harder to get a mortgaged refinanced. Self-employment income fluctuates, and self-employed people don't have the pay stubs required by some lenders. However, it is still possible to refinance a mortgage with self-employed income. Here are tips to qualify for refinancing, if you are self-employed.
Increase Taxable Income
Lenders commonly check taxable income records from the past two years, and it is nearly impossible to qualify for refinancing before then. Consider giving yourself a raise to increase taxable income.
One way to increase taxable income is to reduce tax deductions in the two years before you apply. Lenders commonly look at the number of tax deductions you take. If you take too many deductions, it lowers taxable income, which could disqualify you.
Another way to increase taxable income is by building a hefty savings account. A hefty savings account makes a favorable impression on the lender, because it shows you have liquid in case of emergencies. It also proves you will be able to make payments, even when income drops. Plan to save at least a year's worth of anticipated mortgage payments.
Prove Income
Gather tax returns, review your financial records, and create profit and loss statements, and attempt to go back further than two years. Calculate your net income, not gross income, and divide by two. If you profited $60,000 one year, and $50,000 the next, the lender will use $55,000. If you are an independent contractor making $600 or greater, you should receive a 1099 that you can use to prove income.
Apply for a No-Document Loan
If you have been self-employed for less than two years, or you don't have steady income, apply for a no-document loan. No-document loans gets approved on stated income and credit scores, and require little to no paperwork based on the type as opposed to standard mortgages.
Most lenders prefer a minimum credit score of 740 to approve a no-document loan, and make a downpayment of at least 40%. You should also expect to pay higher closing costs and interest rates. One type of no-doc loan is the low-doc loan, which may require only require income tax returns from the last two years.
When you shop for loan, ask for a good faith estimate from several lenders. A good faith estimate requires the lender to reveal the terms of the loan. Getting refinanced when you are unemployed isn't impossible. It just requires some planning.