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Mortgage Challenges For Self-Employed Home Buyers

November 28, 2018 by Kay Monigold

Mortgage Challenges For Self-Employed Home BuyersIt’s no secret that mortgage lending institutions look favorably on steady paychecks and positive debt-to-income ratios. That can leave many self-employed prospective home buyers feeling anxious about getting approved for a mortgage. But just like the 9-to-5ers who get regular paychecks, self-employed people earning a good living can get approved with a little due diligence.

The primary concern of mortgage lenders is not necessarily where your revenue comes from, it’s confidence that you can meet the monthly obligations. A lender probably wouldn’t see a significant difference between someone who was paid every two weeks and another paid monthly. Why should a self-employed earner be any different? While there are differences, that doesn’t necessarily have to be a bad thing.

Self-Employed Mortgage Applicants Face ‘Different’ Scrutiny

When reviewing a self-employed person’s mortgage application, the lender can expand their consideration to items related to your business. Factors such as stability, longevity, location, and viability are issues that can come into play.

This type of review mirrors that of steady paycheck earners in terms of length of employment, history of layoffs and other potential revenue setbacks. There really isn’t a higher standard for self-employed mortgage applicants. You enjoy a different professional life, and the process reflects those differences. That being said, there are a number of things you can do to put your best foot forward toward mortgage approval.

Strengthen Your Self-Employed Mortgage Application

First and foremost, every mortgage applicant must be able to demonstrate an ability to meet the monthly payments on paper. There is no way around the debt-to-income ratio. And although many self-employed people exercise some lifestyle flexibility in terms of tax deductions, your numbers have to prove you can take on a mortgage. That being said, there are important items you may want to consider when applying for a home loan.

  • Revenue Stability: Volatile swings in revenue are not generally persuasive. Lenders tend to like steady and positive growth reflected in your business and personal earnings.
  • Tax Returns Matter: This can be particularly problematic for people who find creatively legal ways to make revenue tax exempt. Home offices and company cars can lower your taxable income, but they also reduce your ability to pay the mortgage, at least on paper. Plan ahead by strategically filing strong earned-revenue tax returns.
  • Consistency Matters: There are a few ways to demonstrate consistency. It can be level monthly earnings or multiple years of tax returns in the same business. Your income may only be considered if it fluctuates in a way that frightens lenders.
  • Good Credit: Some cash-oriented people tend to discount the value of credit scores. The adage that “cash is king” may apply to the down payment, but a poor credit history can hurt your chances with lenders. Think “credit is king” when applying for a home loan.

Being self-employed does not mean you are at a strategic disadvantage when applying for a mortgage. But keep in mind that the home loan review can be slightly different. As always, your best next step would be to consult with your trusted home mortgage professional to go over your personal situation.

Filed Under: Mortgage Tagged With: Credit Score, Mortgage, Self-Employment

Real Estate Crowdfunding Investment Is Trending

October 30, 2018 by Kay Monigold

Real Estate Crowdfunding Investment Is TrendingAlthough the real estate market is currently booming, the last housing bubble burst remains relatively fresh in investors’ minds and that has many taking a long look at crowdfunding.

One of the lessons that came out of the burst and ensuing Great Recession was that investors were blind to where their money went. If you watched the Academy Award-winning film “The Big Short,” then you at least understand Hollywood’s hyperbolic explanation of the subprime mortgage crisis. You may be asking: what does this have to do with real estate crowdfunding real investing? Well, everything.

Among the key reasons that the financial collapse occurred was the fact that investors had no clue what was in the AAA collateralized debt obligations (CDOs). Most people didn’t know what was in them and others simply did not care. At the end of the day, Americans lost massive amounts of wealth because they were not hands-on about investing.

That’s a primary reason why real estate crowdfunding platforms are trending. Crowdfunded real estate investments tend to be more of an open book. Consider the transparency differences between crowdfunding and a real estate investment trust (REIT).

Transparency: Crowdfunding Or REIT

Let’s assume that you are not particularly keen on buying an investment property and becoming a landlord. Although renting yourself has its benefits, it can also be labor intensive at times. That being said, wealth-building alternatives such as REITs and crowdfunding present opportunities that require less effort.

REITs tend to be the more hands-off than crowdfunding. That’s because REITs are generally traded funds. Dating back to 1971, the FTSE Nareit REIT index reportedly yielded a return of 9.72 percent. Some REIT investments do quite well in specific sectors such as self-storage and office space among others.

But REITs can be widely diversified, and some have non-real estate assets embedded in them. An REIT with hundreds of moving parts can be onerous to track. That makes them feel a lot like the CDOs. This is not to imply that REITs are a scam like those CDOs. It’s just that crowdfunding investments are more clear.

When investors opt for crowdfunded real estate investments, it falls on their shoulders to select specific properties for their portfolio. Unlike an REIT in which you just buy in and someone else manages the entire fund, crowdfund investors pick real estate options one at a time. In many ways, it is like becoming a landlord, just with someone else doing the legwork. At the end of the day, there’s less need for transparency because you picked all the assets yourself.

Why Consider Real Estate Crowdfunding?

Besides not having to do the heavy lifting, real estate crowdfunding generally avoids much of the volatility of the market-driven REITs and stocks. Everyday people are not investing the market per se, just the select properties you feel confident about. Also, the IRS reportedly allows investors to deduct depreciation.

But what makes real estate crowdfunding increasingly popular is that it allows people to invest directly into tangible properties without having to take on landlord responsibilities. Simply put, you know what you are buying.   

Checking your credit and becoming pre-approved are important first steps for most home purchases. It is important to discuss other factors, including seasoning of funds, when considering options like crowdfunding. These are all steps your trusted home mortgage professional can help you navigate. 

Filed Under: Mortgage Tagged With: Crowdfunding, Mortgage, Real Estate

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Kay MonigoldKay Monigold
Owner/Mortgage Broker/Residential Mortgage Loan Originator
NMLS#1086176

Steven LoweSteven P Lowe, Sr
Residential Mortgage Loan Originator
NMLS #1085638

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