employed buyers will have their tax returns especially scrutinized, so a good lender will ensure that the self-employed borrower has clean tax returns for at least the previous two years. The lender must check the borrower’s tax information to ensure that the income requirements match. This is because self- employed individuals will often take advantage of tax deductions, which results in a smaller perceived income. As a result, they have a much harder time getting a loan. If the borrower has been self-employed for only a short time (less than two years), it is extremely difficult to get approved for a loan. Currently, there are lots of programs available to help business owners become homeowners, such as a bank statement loan. Please reach out to a broker like myself before counting yourself out.
Payment Shock
Another issue to mention that plays some part in loan underwriting decisions is called “payment shock.” This is when, despite the best intentions and careful planning, a new homeowner is surprised to find that their new living expenses are far greater than they had anticipated. A good loan officer and underwriter will try their best to figure this out ahead of time. However, it’s easy to overlook certain future expenses. For example, perhaps the borrower/buyer has an advantageous rental on a small apartment and pays $800 a month and has an annual income of close to $100,000. You (and the lender) know you can easily afford an $1,800-per-month mortgage payment. But living in a rented apartment doesn’t involve other costs that you now will be responsible for, like homeowner’s insurance payments, property taxes, landscaping fees, trash removal payments, etc. The $1,800 mortgage also doesn’t factor in replacements and repairs of in-home property, like water boilers, laundry machines, electrical issues, etc. Suddenly, that $1,800
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