Monthly Archives: December 2014
Getting a mortgage when you’re self-employed can be a challenge. Your income stability is viewed as more volatile than someone who works full-time for another business. It’s also harder for lenders to verify your income. As a result self-employed buyers may receive 40% fewer mortgage quotes, according to a new study out from Zillow.com, despite often having higher incomes. An experienced lender can help self-employed applicants successfully find funding – from packaging applications in compelling ways to seeking alternative funders. Here’s a closer look at some key strategies to keep in mind.
Employment history and credit scores are critically important
When lenders can’t look forward to specific income, they’re going to scrutinize your past more intensely. One way that manifests is looking for at least two years of history that you’ve been successfully self-employed. With two years of steady employment history, lenders typically deem that you’re a more stable investment. It’s also key that your credit score is as strong as possible, or you may find yourself denied.
A good credit score indicates that you’ve managed your financial history well, potentially in spite of fluctuations due to the self-employed lifestyle. Taking the time to ensure you’ve got as strong a history as possible – backed up with the appropriate documentation – greatly improves your chances of getting a mortgage.
Cash improves the stability of your overall financial picture
Your overall financial picture matters a lot when you’re self-employed. What’s your current net worth? What do you have available in savings, retirement funds, investments, and other assets? A significant amount of cash at hand improves the perceived stability if your overall financial picture. Often, self-employed individuals can improve their chances of getting a loan with something as simple as one year of mortgage payments in a bank account. The right lender can help you determine what aspects of your financial picture will best demonstrate your ability to afford a home.
Documentation helps lenders overcome reservations
One of the keys to communicating that you’re a less risky investment as a self-employed person is having sufficient documentation on hand. At a minimum, lenders are going to want two to three years of IRS-approved tax returns that show your income level. In some cases, lenders will want to go back even further to look for established patterns. Contracts that show your income going forward can also be helpful in establishing your solvency going forward, as are any 1099s from the year to date. In addition, it will be important to provide statements for bank accounts, retirement holdings, and more as outlined above.
While it’s often more difficult to get approved for a mortgage as a self-employed person, the right lender can help. Contact Sydnee Johnson today to learn more about how she can assist you with getting a mortgage.
Did you know that some closing costs are tax deductible? As the year is drawing to a close, it’s time to think about your taxes. The reality that many buyers are unaware of is that purchasing a house can give you some tax advantages in the year that the purchase is made. Happily, this may provide you with an extra incentive to close on a home purchase before the end of the year or give you additional financial flexibility when choosing the property that’s right for you. Here’s a closer look at what prospective buyers need to know.
It’s important to keep in mind that only buyers who file their tax returns with an itemized IRS form 1040 are able to take these deductions. Tax payers who take the standard deduction and file a 1040EZ are unable to claim the benefits, for example. If you have any questions about whether your closing costs will be tax deductible, it’s always wise to consult a tax professional.
In most real estate transactions, buyers are provided a copy of a form called the HUD-1. The HUD-1 is a list of all your settlement costs or closing costs. Not only will this help you or your accountant determine what items you may be eligible to deduct, but it’s important backup data in case the IRS has any questions on your filing.
One area to look at for tax deduction is pre-paid interest on the life of your mortgage. Sometimes these are called points or even a loan origination fee. By paying your lender interest upfront, you’re in essence purchasing a lower interest rate on your mortgage. Often, some or all of this amount may be deducted from your taxes.
Property taxes are often also an option for you to deduct. Since property taxes are typically paid once per year, the sellers have often prepaid the taxes for the year in which you’re purchasing your home. As a result, your settlement fees may include repaying them for a portion of the year’s property taxes. These taxes may be eligible to be listed as a deduction.
Monthly pre-paid interest
In addition to any points that you paid on your mortgage, review your settlement statement to see if you pre-paid any monthly interest on your mortgage. Often, when you purchase a home you’re required to pre-pay any interest generated in the month in question. So for example, if you purchase a home on the 15th of the month you will typically pre-pay any interest due from the 15th to the end of that month, before assuming your regular mortgage payments.
Are you interested in purchasing a home in the Las Vegas area? Contact Sydnee Johnson today to learn more about your financing options, and talk to your accountant about which closing costs are tax deductible.
Down payments are an important part of the home buying process. Reaching that critical 20% mark helps position you as a serious buyer. It also has major implications for your financing situation – from increasing your chances of approval to lowering your monthly payment. But many buyers struggle with developing a strategy to save such a significant sum. While there are programs that help you buy with as little as 5%, saving as much as possible is a wise step for prospective buyers. Here are some tips that have helped experienced buyers reach their down payment funding goals.
Evaluate your budget and cut expenses
One of the easiest ways to get to a 20% down payment is to increase your rate of saving money. Can you find ways to slash your spending? If you made coffee at home each morning and saved $3, that’s $1080 into your home fund over the course of the year. Bringing your lunches to work, reducing how often you eat out, and canceling cable are examples of small steps that can add up to thousands in savings over the course of a year. Some people planning to buy actually adopt a very minimalistic lifestyle for a short period of time, to dramatically accelerate their savings. It’s often easy to do this, knowing that it’s just until you reach your goal.
Find ways to make more
Increasing your savings requires one of two things: spend less or make more. When you’ve cut your expenses as far as you’re able or willing to, it’s time to look at how you can generate more income. Can you pick up overtime at your current job? Can an unemployed spouse take on a seasonal, part-time job? Is it feasible to take on a second job for a short period of time? Do you have specific skills – for example web design or marketing – that could allow you to take on consulting clients? Strategically increasing your income is one of the best ways to speed up your progress toward your down payment goals.
Leverage your assets
If you’re working to reach a specific sum for your down payment, another avenue to consider is your existing assets. Do you have unused electronics, second TVs, or even cars or motorcycles that you’re barely using? It may be time to sell these to give a nice bump to your down payment fund. Selling unused possessions also has the secondary benefit of less to pack and move when you finally do buy your dream home. Some buyers also have retirement assets that they choose to leverage toward a down payment. It’s important to consult your financial advisor or tax professional to decide if this route is right for you. But in some cases, for example, it’s possible to borrow against a 401K and repay it to yourself with interest.
Are you a buyer in the Las Vegas area that’s interested in discussing your financing options? Contact Sydnee Johnson today to learn more about financing programs available to buyers with different levels of available down payment funding.