The Lending Coach

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Category: Refinance (page 1 of 3)

The New Refinance Movement

Tapping into home equity by refinancing is more of a possibility today and becoming very popular for many borrowers.

As housing values across the country continue to steadily increase, homeowners now have access to a much larger source of equity.

With current mortgage rates low and home equity on the rise, many think it’s a perfect time to refinance your mortgage to save not only on your overall monthly payments, but your overall interest costs as well.

It’s really about managing the overall assets that you have in order to maximize the returns. Make sure you are working with the right mortgage lender to help in figuring out which product is best.

Cash-out refinance – what is it?

A mortgage refinance happens when the homeowner gets a new loan to replace the current mortgage. A cash-out refinance happens when the borrower refinances for more than the amount owed on their existing home loan. The borrower takes the difference in cash.

Home Equity is on the Rise

Since rising home values are returning lost equity to many homeowners, refinancing can make a good deal of sense with even a small difference in your interest rate. Homeowners now have options to do many things with the difference.

More home equity also means you won’t need to bring cash to the table to refinance. Furthermore, interest rates can be slightly lower when your loan-to-value ratio drops below 80 percent.

Here’s what many of my customers are doing with that equity:

  • Purchase a 2nd Home or Investment Property (or a combination of both)
  • Home Improvement – upgrades to kitchen, roof, or pool
  • Consolidate higher interest debt
  • Eliminate Mortgage Insurance

Benefits of Cash-out Refinances

Free Up Cash – A cash-out refi is a way to access money you already have in an illiquid asset to pay off big bills such as college tuition, medical expenses, new business funding or home improvements. It often comes at a more attractive interest rate than those on unsecured personal loans, student loans or credit cards.

2nd Home or Investment Property – many borrowers are utilizing the value of the cash in their home to purchase rental properties that cash flow better then the monthly payments of the new loan.

Improve your debt profile – Using a refinance to reduce or consolidate credit card debt is also a great reason for a cash-out refinance. We can look at the weighted average interest rate on a borrower’s credit cards and other liabilities to determine whether moving the debt to a mortgage will get them a lower rate.  Some borrowers are saving thousands per month by consolidating their debt through their mortgage.

More stable rate – Many borrowers choose to do a cash-out refinance for home improvement projects because they want a steady interest rate instead of an adjustable rate that comes with home equity lines of credit, or HELOCs.

Tax deductions – Unlike credit card interest, mortgage interest payments are tax deductible. That means a cash-out refinance could reduce your taxable income and land you a bigger tax refund.

Reasons NOT to Refinance

Terms and costs – While you may get a lower interest rate than your current mortgage, your cash-out refi rate will be higher than a regular rate-and-term refinance at market rate. Even if your credit score is 800, you will pay a little bit more, usually an eighth of a percentage point higher, than a purchase mortgage. Generally, closing costs are added to the balance of the new loan, as well.

Paperwork headache – Borrowers need to gather many of the same documents they did when they first got their home loan. Lenders will generally require the past 2 years of tax returns, past 2 years of W-2 forms, 30 days’ worth of pay stubs, and possibly more, depending on your situation.

Enabling bad habits – If you’re doing a cash-out refinance to pay off credit card debt, you’re freeing up your credit limit. Avoid falling back into bad habits and running up your cards again.

The Bottom Line

A cash-out refinance can make sense if you can get a good interest rate on the new loan and have a good use for the money. But seeking a refinance to fund vacations or a new car isn’t a good idea, because you’ll have little to no return on your money. 

On the other hand, using the money to purchase a rental property, fund a home renovation or consolidate debt can rebuild the equity you’re taking out or help you get in a better financial position.  It would be my pleasure to see if this type of plan might be a good one for you.

Just remember that you’re using your home as collateral for a cash-out refinance — so it’s important to make payments on your new loan on time and in full.

Understanding Discount Points – A Primer

There is a fair amount of confusion from prospective buyers about mortgage “points”.  What are they? Why do they exist?

Discount points are a one-time, upfront mortgage closing costs, which give a mortgage borrower access to “discounted” mortgage rates as compared to the market.

In general, one discount point paid at closing will lower your mortgage rate by 25 basis points (0.25%).

Do they help or hurt they buyer?

The answer, of course, is “it depends”.

Dan Green at The Mortgage Reports does a fantastic job in highlighting the definitions and costs/benefits of the paying points. You can find out more here….

By the way, the IRS considers discount points to be prepaid mortgage interest, so discount points can be tax-deductible.

What Are Mortgage Discount Points?

When your mortgage lender quotes you the interest rate, is typically quoted in two parts.

The first part is the mortgage rate itself, and the second part is the number of discount points required to get that rate.

You’ll notice that, in general, the higher the number of discount points you’re charged, the lower your mortgage rate quote will be.

Discount points are fees specifically used to buy-down your rate.

On the settlement statement, discount points are sometimes labeled “Discount Fee” or “Mortgage Rate Buydown”. Each discount point cost one percent of your loan size.

Assuming a loan size of $200,000, then, here are a few examples of how to calculate discount points for a mortgage loan.

  • 1 discount point on a $200,000 loans costs $2,000
  • 0.5 discount points on a $200,000 loan costs $1,000
  • 0.25 discount points on a $200,000 loan costs $500

Discount points can be tax-deductible, depending on which deductions you can claim on your federal income taxes. Check with your tax preparer for the specifics.

How Discount Points Change Your Mortgage Rate

When discount points are paid, the lender collects a one-time fee at closing in exchange a lower mortgage rate to be honored for the life of the loan.

The reason a buyer would pay discount points is to get the mortgage rate reduction; and, how much of a mortgage rate break you get will vary by lender.

As a general rule, paying one discount point lowers a quoted mortgage rate by 25 basis points (0.25%). However, paying two discount points, however, will not always lower your rate by 50 basis points (0.50%), as you would expect.

Nor will paying three discount points necessarily lower your rate by 75 basis points (0.75%)

As outlined by Dan Green in his Mortgage Report article, here’s an example of how discount points may work on a $100,000 mortgage:

  • 3.50% with 0 discount points. Monthly payment of $449.
  • 3.25% with 1 discount point. Monthly payment of $435. Fee of $1,000.
  • 3.00% with 2 discount points. Monthly payment of $422. Fee of $2,000.

You’ll note that when you pay discount points come, it costs at a cost, but it also generates real monthly savings.

In the above example, the mortgage applicant saves $14 per month for every $1,000 spent at closing. This creates a “breakeven point” of 71 months.

Says Green, “Every mortgage loan will have its own breakeven point on paying points. If you plan to stay in your home beyond the breakeven and — this is a key point — don’t think you’ll refinance before the breakeven hits, paying points may be a good idea.”

Otherwise, points can be waste.

“Negative” Discount Point Loans (Zero-Closing Cost)

Green highlights another helpful aspect of discount points is that lenders will often offer them “in reverse”.

“Instead of paying discount points in order to get access to lower mortgage rates, you can receive points from your lender and use those monies to pay for closing costs and fees associated with your home loan,” he says.

The technical term for reverse points is “rebate”.

Mortgage applicants can typically receive up to 5 points in rebate. However, the higher your rebate, the higher your mortgage rate.

Here is an example of how rebate points may work on a $100,000 mortgage:

  • 3.50% with 0 discount points. Monthly payment of $449.
  • 3.75% with 1 discount point. Monthly payment of $463. Credit of $1,000.
  • 4.00% with 2 discount points. Monthly payment of $477. Credit of $2,000.

Homeowners can use rebates to pay for some, or all, of their loan closing costs. When you use rebate to pay for all of your closing costs, it’s known as a “zero-closing cost mortgage loan”.

When you do a zero-closing cost refinance, you can stay as liquid as possible with all of your cash in the bank.

Rebates can be good for refinances, too, as loan’s complete closing costs can be “waived”. This allows the homeowner to refinance without increasing its loan size.

When mortgage rates are falling, zero-closing cost mortgages are an excellent way to lower your rate without paying fees over and over again.

Please do reach out to me to find out more about how utilizing discount points can help you in your next transaction!

New Regulatory Changes Help More Borrowers Qualify

I have some good news for those looking to get a mortgage in the near future — as 20% of U.S. consumers could see their credit score increase this fall.

Credit Changes

The nation’s three major credit rating agencies, Equifax, TransUnion, and Experian, will drop tax liens and civil judgments from some consumers’ profiles if the information isn’t complete.

Because of the combination of these two dramatic changes, many potential borrowers that did not qualify for a home loan might now be eligible under these new regulations.

These credit bureaus will also be restricted from including medical debt collections. If the debt isn’t at least six-months old or if the medical debt was eventually paid by insurance, it can’t be listed.

The reason is that medical debts, unlike that of credit charges, are unplanned and doctors and hospitals have no standard formula for when they send unpaid debts to collection.

Debt-to-Income Changes

In addition to the FICO changes, mortgage titans Fannie Mae and Freddie Mac are allowing borrowers to have higher levels of debt and still qualify for a home loan. Both are raising their debt-to-income ratio limit to 50 percent of pretax income from 45 percent. That is designed to help those with high levels of student debt.

This move by the mortgage leaders will dramatically increase the number of people who will now be able to qualify for a home loan. Most industry experts agree that this is a welcomed and much needed change for millennials and first-time homebuyers.

If you have been considering a home purchase or refinance, now is a great time to take a look at it.

Contact me to find out if these changes might benefit you or someone you know!

Keys to a Fast Mortgage Approval – Have These 6 Items Ready

Before you get set to make that offer on your dream home, it’s vitally important to be qualified for that mortgage, if you will be financing the property.

With that in mind, there are a half-dozen necessary documents that you will need to prove your reliability to a mortgage lender.

Here are the documents you’ll want to make sure you have when the time comes for pre-qualification and approval.

Recent Paystubs

It can be more difficult to gain mortgage approval if you have inconsistent work history or are self-employed, so you’ll need to show 2 months of recent pay stubs to prove consistent employment.

Copy of Driver’s License and Social Security Card

Our underwriters will need to verify your identity against your credit report and other items.

Previous Tax Returns and/or W2s

In order to ensure the earnings information you’ve provided to the lender is correct, you’ll most likely need to provide your federal tax returns for the two years prior to your mortgage application. In addition, you may also be required to provide your W-2s as backup documentation.

Bank Statements

In order to identify where the down payment or closing costs are coming from, you’ll need to present bank or savings statements to show that you have the money necessary for the transaction. If you are planning on receiving a gift from parents or relatives for that down payment, you’ll need a letter to show where the funds are coming from and to show that the funds are, in fact, a gift.

Investment and Asset Statements

It’s certainly a good sign to the lender if you have a healthy balance in your checking and savings accounts, but you’ll also need to provide any statements for mutual funds and other investments. While they may not be necessary to prove financial soundness, they will help with approval if you have a lot of money saved.

A List Of Your Debts

This process might not be the most fun, but your lender will also want to know about any outstanding debts like auto loans, credit card payments or student loans. The majority will show on the credit report obtained by the lender, but don’t fail to tell your loan officer about all debt related issues.

The mortgage application and approval process isn’t easy, but it isn’t rocket science, either! Having the appropriate documentation and being upfront about your debts, you may be able to speed up the timeframe. If you’re currently looking at your mortgage options, don’t hesitate to contact me to find out more. It would be my pleasure to help!

Cash Out Refinances for Student Loans

Mortgage giant Fannie Mae has once again re-tooled some of their guidelines. This time it is regarding student loans and how they are treated in debt-to-income ratios for qualifying for a mortgage. This really is fantastic news.

It gets even better for homeowners who have student loans, as Fannie Mae is offering improved pricing on cash out refinances for paying off student loans.

The Big News

Effective immediately, Fannie Mae will waive the “loan level price adjustments” (LLPA), or rate increase adjustment, on cash-out refinances when student loan are being paid off. LLPA’s are intended to adjust for the “risk based” pricing and they directly impact mortgage rates.

Here’s a practical example: a cash out refinance with a loan to value of 80% and credit scores of 740 or higher, has a price adjustment of 0.875 points! This is typically factored into the cost of the rate. (you can click here for Fannie Mae’s LLPA matrix).

The lower your credit score, the higher the adjustment is because of the anticipated higher risk for the loan.  Get this….if student loans are being paid off, the extra cost of the LLPA is waived!

The Specifics

In order to qualify for the new special student loan cash-out refinance, the following must take place:

  • at least one student loan must be paid off;
  • loan proceeds must be paid directly to the student loan servicers at closing;
  • only student loans that the borrower (home owner) is personally obligated are eligible;
  • student loan must be paid off in full with the proceeds from the refi. No partial payments are allowed;
  • property may not be listed for sale at the time of the transaction.

Homes in the California and Arizona area have appreciated at a solid rate over the last few years. Now may be a great opportunity to eliminate student loan debts…especially with the preferred lower mortgage rate!  Please do contact me for more regarding this program.

How Much Do Extra Mortgage Payments Save You?

Paying extra on your home loan can make good financial sense.

It really means a guaranteed return on investment, which isn’t the case for other investments like stocks or mutual funds.

If your current mortgage interest rate is, say, at five percent, you are guaranteed to “earn” five percent — by saving interest — on any amount of principal you pay off.

Borrower Options

Most conventional, FHA, and VA loans allow the borrower to make extra payments (known in the industry as prepayments), without any penalty or fee.

To be clear, making extra mortgage payments might not be the right strategy for everyone, however.

Homeowners often refinance instead, into a 15- or even ten-year mortgage. This drastically cuts their interest rate and slices years off their mortgage.

For shorter-term loans, sometime is the 3% range, make refinancing a very attractive proposition.

Deciding to refinance or make additional payments takes some examination, but the right choice could help you save thousands in interest and get you closer to a mortgage-free life.

Find out more here, from The Mortgage Reports

Big Savings

By making extra principal only payments, the savings could be huge.

For example, a 30-year fixed-rate mortgage at 4% and $200,000 borrowed would require about $140,000 in interest over the life of the loan.

But if you were to prepay just an additional $100 a month toward principal, you would save about $30,000 in interest, and pay off that loan five years quicker.

Here’s another prepayment benefit: unlike the capital gains and dividends earned on other types of investments like stocks and bonds, the savings earned from prepayments are not taxable.

In many cases, taking a longer-term loan at 30-years might be a great option – especially if you pay off the principal faster. You get the flexibility of a smaller monthly payment, but can pay the mortgage down quicker, if you choose.

I’d be more than happy to sit down and talk with you about mortgage term related options. Contact me here for more!

New Fannie Program to Solve Student Loan Debt Qualification Issues

A truly groundbreaking mortgage solution is now being offered by Fannie Mae, as the country’s biggest mortgage agency is making getting approved for a mortgage much, much easier.

Fannie Mae announced three new features that will help those burdened with student loans to qualify to buy a house, or pay off their student loans via a refinance.

“We understand the significant role that a monthly student loan payment plays in a potential home buyer’s consideration to take on a mortgage, and we want to be a part of the solution,” said Jonathan Lawless, Vice President of Customer Solutions, Fannie Mae.

The new program is called Student Loan Solutions, and represents a huge shift by Fannie Mae.

Source: The Mortgage Reports and Tim Lucas

Change #1: Student Loan Payment Calculation

Fannie Mae has changed how lenders calculate student loan payments.

Lenders may use the student loan payment as it appears on the credit report for qualification. Period. That may seem like common sense, but it’s not how things have been done in the past.

Change #2: Student Debt Paid By Others

Just because a payment shows up on a mortgage applicant’s credit report does not mean he or she pays it.

Often, that obligation is taken care of by a parent or another party.

In these cases, Fannie Mae is disregarding the payment altogether. That applies not only to student loans, but payments for all debts.

Change #3: The New Student Loan Cash-Out Program: Pay Off Education Loans With A Refi

Perhaps the biggest shift of all is Fannie Mae’s rework of cash-out rules regarding student loans.

Typically, cash-out refinances come with higher rates. They are considered higher risk by lenders and Fannie Mae.

So, according to Fannie Mae’s loan level price adjustment matrix, a lender must charge an extra 1%-2% of the loan amount in fees or more, just because the loan is deemed “cash-out”.

Now, Fannie Mae does not consider the loan a cash-out transaction if loan proceeds completely pay off at least one student loan.

This loan classification has never been seen before — a kind of hybrid between no-cash-out and cash-out financing. Fannie Mae simply calls it the Student Loan Cash-Out Refinance.

Please do reach out to me to discuss these significant changes to see how I might be able to help you either purchase or refinance!

Is A Jumbo Mortgage Better Than A Conforming Home Loan?

What Is A “Jumbo” Mortgage?

A “jumbo” mortgage is a loan that larger than the current conforming  guidelines established by Fannie Mae or Freddie Mac. Today, a mortgage that exceeds $424,100 is considered “non-conforming.”

So, when you finance expensive property, you need a jumbo mortgage. Interestingly, the borrower has to play by different rules, because mortgages for high-priced homes are not necessarily standardized.

Jumbo Mortgages: They Are Back

During the mortgage crisis a number of years ago, jumbo loans all but vanished. The ones that remained came with guidelines that were nearly impossible for homeowners to meet.

Jumbo loans generally meant high down payments, higher interest rates, and high credit standards – which made these loans essentially obsolete.

But as the real estate market steadily recovered, jumbo loans have been re-entering the lending landscape.

In fact, homebuyers in the market for a larger loan may be pleasantly surprised to know that jumbo mortgage rates are nearly as low as conforming rates.

Source: The Mortgage Reports

Conforming Rates vs. Jumbo Mortgage Rates

Years ago, the difference between conforming mortgage rates and jumbo rates ranged between half a point to two full points.

These days, however, the spread between jumbo rates and conforming rates is minimal – sometimes as little as 1/10th of a percent, according to a number of surveys out in the marketplace.

Look At Jumbo ARMs

Adjustable rate mortgages can be over one percent lower than fixed-rate jumbo loans. For borrowers with larger loans, ARMs are popular alternatives.

That’s because with bigger balances, the effect of a lower interest rate on what you pay each month is more pronounced.

In addition, jumbo ARM rates can sometimes be lower than their conforming counterparts.

Many jumbo ARMS are not sold to investors, but are instead held by lenders on their own books. These “portfolio” mortgages can be made according to whatever guidelines and pricing the lenders establish.

The market is much less homogeneous, and the smart shopper can often find a bargain with a lender trying to expand its market share or build up its pipeline.

Jumbo ARMs come with introductory periods in which their rates are fixed. You can find loans fixed for three, five, seven, or ten years.

If you don’t keep your mortgage for more than the introductory period, you’ll never even have to deal with rate adjustments. And interestingly, most borrowers don’t hold on to those mortgages for more than 7 years.

Compare and Shop Jumbo Mortgage Rates

Unlike conforming mortgage rates, which typically differ by .25 to .5 percent between competitors, jumbo mortgage rates can vary largely from one lender to the next.

Jumbo lenders can serve different markets — alternative documentation, non-prime, unorthodox properties, or borrowers with big down payments and perfect credit — and that affects the rates charged.

This means that when conforming mortgage rates are higher, jumbo rates don’t necessarily follow that the same path.

It definitely pays to shop and compare.

Unlike smaller mortgage loans, a half percent difference in the interest rate on a $700,000 loan amount can add up over time.

  • $700,000 at 4.375% = $3,495
  • $700,000 at 4.875% = $3,704

The difference between these two scenarios adds up fast. Over five years, $209 per month saves over $12,500.

Let’s Talk

If you are interested, please do reach out to talk in further detail about jumbo mortgage products.  It would be my pleasure to help!

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

 

5 Ways to Raise Your Credit Score Today

fico

I receive questions all the time regarding the credit scoring system, the FICO score, and how to improve those scores.

Not only can improving your FICO credit score improve your chances of obtaining a mortgage, but it could improve your auto insurance premiums and, possibly, make you a more attractive employment candidate.

FICO scores range from 300 to 850 – and mortgage applicants get the best mortgage rates and terms when their FICO scores are 720 or higher.

For borrowers of all FICO scores, the best way to improve your credit rating is to understand the factors that make up your FICO score, and to take the right actions that can make a positive impact on your score.

Find out more here from The Mortgage Reports and Britt Scearce

What’s Included In Your FICO Score

The FICO credit score takes into account a combination of all of the information found in your credit report.washingtonpostwordle

Your FICO score is made up of the following:

  • Payment History: 35% of your overall FICO
  • Total Amounts Owed: 30% of your overall FICO
  • Length of Credit History: 15% of your overall FICO
  • New Credit: 10% of your overall FICO
  • Type of Credit in Use: 10% of your overall FICO

To find out what is impacting your FICO score you will want to review your credit reports.  You can obtain a free copy of your credit report from each of the three main credit reporting agencies — Equifax, TransUnion, and Experian — at www.annualcreditreport.com.

Your scores are generated based on a snapshot of the information on your credit report as of the particular moment that the report is pulled. Correcting errors is crucial, therefore, to ensure the highest possible FICO score.

Here are things you can do in the short term to improve your score:

1. Verify your accounts are current

“Payment History” makes the largest impact on your FICO score at 35% of your overall score. It is vital, therefore, that you keep current on all of the accounts reporting to your credit report.

When reviewing your credit report, should you find any accounts that are past due, catch them up as soon as possible and pay at least the minimum payment required by the due date.

2. Dispute your inaccuracies

Should you detect any errors on your credit report, you will want to request a correction as quickly as possible.  In order to make a correction, use the information on your report to contact the credit bureaus, and also the creditors which provided the erroneous data to the bureaus.  Getting even one late payment removed from your credit report can improve your FICO score dramatically.

piggybank-house3. Ask for a little grace

Sometimes, a creditor may be willing to “help you out”.  In cases where you make a relatively small slip-up, with a creditor you’ve never been late with, you can sometimes get a late-payment waived.  It’s always a good idea to make a phone call and to ask for a little grace.  This works best if you catch the delinquency early and bring the account current right away.

There are many examples of creditors removing a late payment from your credit report if there’s a legitimate story behind what happened, and if you can explain what steps you’ve taken to avoid a repeat occurrence.

4. Settle up collections, charge-offs, judgments and liens

Old collection items, credit card charge-offs, and judgments and liens can hurt your FICO score, too. If you’ve got any of these on your credit report, it’s time to contact your creditors and collection agencies and to settle up one-at-a-time.

In many cases, you can negotiate with your creditors to remove a trade line completely in exchange for settling an account for its full balance. You need to call your credits first, however, to find out.

5. Improve your debt utilization ratio

Another way to improve your FICO is to improve your “amounts owed”, or debt utilization ratio.  Debt utilization makes up 30% of your FICO credit score.  This is a measure of how much you money you owe to creditors as compared to how much credit is available to you.  The FICO scoring model takes into account the utilization of each individual credit account; and the utilization of all of your credit accounts combined.Cool bulbs

For example, if you have five credit cards, each with a $2,000 limit, you have a total $10,000 available credit over all five accounts. If you carry a $1,000 balance on one of the five accounts, you would have a 50% utilization on one card and a 10% utilization over all of your credit.

In general, debt utilization of 30% of less is good for FICO scores. Utilization over 30% is often bad.

Now that you are armed with this – get to work and see what you can accomplish to improve that score.  Give me a call, as I’d be more than happy to coach you through this process, as well!

 

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc

Mortgage Approval After One Year of Self-Employment?

one-year

Self-employed mortgage applicants must prove stability of employment and income, usually going back two years.  This is a bit tougher than it is for regular salaried employees.

Traditionally, mortgage lenders have required two years federal income tax returns in securing a mortgage for purchasing or refinancing real estate.  There’s been changes to the way mortgage lenders underwrite mortgage loans.

Fortunately, there is a way to use just one year of tax returns to qualify for a mortgage.  This can help newer business owners, as well as those who experienced a down year in the past.

Key ExchangeWhether you are looking to buy a home or refinance one, you may be able to qualify by showing only your most recent year of income.  Check out this article by The Mortgage Report’s Adam Lesner for more.

Getting Approved As A Self-Employed Applicant

Generally, a self-employed borrower is any individual who has 25% or greater ownership interest in a business.

According to conventional mortgage guidelines published by Fannie Mae, underwriters consider the following factors to approve a self-employed borrower.

  • The stability of the borrower’s income
  • The location and nature of the borrower’s business
  • The demand for the product or service
  • The financial strength of the business
  • The future outlook of the business

Two points stand out here when getting approved as a business owner: stability and consistency.

The way underwriters measure stability is by looking at length of history in that business specifically, and in that field.

They typically want to see a two-year history in the respective industry. This is where you may be granted an exception if you haven’t been self-employed the whole two years in that line of work.

Ask The Lender To Use Different Approval Software

In some cases, the underwriter won’t ask you to provide a full two years’ worth of tax returns.

Most applicants’ files are run through computerized underwriting systems, then verified by real person. The underwriting software, in some cases, will ask for the most recent year of tax returns only.

Freelancer-Finances-810x552The one-year requirement typically comes from “Loan Prospector,” which is Freddie Mac’s loan approval software. Fannie Mae’s version of the software is less likely to give you a one-year requirement. Most lenders can approve loans via Freddie Mac or Fannie Mae.

If you have been self-employed less than two years, ask your lender to try running your scenario through Loan Prospector. There’s a chance this system will require you to document less self-employment than would another system.

If you receive the reduced, one-year requirement, it’s important to understand that your tax return must reflect a full year of self-employment income.

For example, if you became self-employed in April 2015, that year’s tax returns are not going to reflect a full year.  If you started your business in November 2014, then your 2015 tax returns will demonstrate a full year of experience running your business.

Give your mortgage lender a call to find out more!

 

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

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