How To Get A Mortgage If You’re Self-Employed

There are numerous benefits to being self-employed – you’re your own boss. However, when it comes to securing a mortgage, the process deviates slightly from traditional mortgages. It often involves additional requirements and more administrative procedures. Here are some tips to help you get organized and approved if you’re self-employed.

Apply for a mortgage when your income is high. We understand this is easier said than done, but lenders will focus most on your income from the last two years. If your income fluctuates, it’s best to apply in a high-income year. This strategy can help you qualify for a larger loan amount and a lower interest rate.

Lower your DTI. Your debt-to-income ratio is one of the critical factors in getting approved. Therefore, it’s beneficial to pay down both business and personal debts. Also, avoid opening new lines of credit a few months before applying.

Don’t mix business and personal finances. Keep your business and personal finances separate by maintaining distinct bank and credit card accounts for business and personal use. This separation helps lenders easily discern business income and expenses and demonstrates that you are managing your business professionally.

Please feel free to give us a call or contact us through our pre-qualification app, and we can determine which product best suits your needs. You may be a candidate for a Qualified Mortgage (QM) or a non-QM lender. Either way, we can review and help you get started!


Do Swimming Pools Add Value To A Home?

With summer around the corner, a lot of people are asking if a swimming pool will add value to their home (to be clear, we are talking about in-ground pools here).
The answer is, it depends. Studies show that it can add 5% or more to the value of your home, but these studies pre-date Covid. If you are in a warmer climate like Texas or Florida, pools can add more value and may be more desirable. In fact, if your home is in a high-end area where most homes have pools, lacking one can actually lower your home’s value.
Of course, you have to take into account the building and maintenance costs, as well as whether your yard has enough space to accommodate a pool while still leaving ample area.
It’s probably a good idea to add a pool for your own enjoyment rather than just building one to increase resale value. If you’d like more feedback on your property and how it fits into the market, feel free to schedule a consultation with us on our website for more details and the latest market conditions. We can also discuss lines of credit to fund pool development.


2-1 Buydown Loans Explained

We all know that interest rates are higher than they were a year ago (and we all hope they don’t stay that way). A product that is becoming more popular is a 2-1 buydown, which provides a lower interest rate for the first year of the loan, then increases in the second year, and the third and subsequent years will have the full interest rate. To compensate for the lower payments, a fee is charged.

A buydown can be financed by either the homebuyer or the home seller. This payment can take the form of mortgage points or a one-time sum placed in an escrow account managed by the lender, which is then used to subsidize the borrower’s reduced monthly payments. Often, sellers, including home builders, utilize 2-1 buydowns as an incentive for potential buyers.

Buydowns are not available for all loans; for example, they are available on FHA loans but only for new purchases and not refinances. Check with us to see if a buydown makes sense for your situation.


What Is A Letter Of Explanation?

When you apply for a mortgage you have to provide a lot of documentation, like bank statements, tax returns, and pay stubs. But sometimes, lenders also require a letter of explanation to better understand your financial situation. This letter can be essential in securing loan approval and should be treated as a requirement. It helps fill gaps in your financial picture and provides a deeper understanding of your ability to repay the mortgage.
A letter of explanation is typically requested when specific information in your application raises a red flag for the lender. For example, it may be needed to explain a job change, past credit issues, new credit card applications, large bank transactions, or unsteady income sources. Proactively submitting a letter of explanation can be beneficial if you are aware of potential issues in your application.
Of course in the event you need to provide a letter, we can help with it so you’re not in it alone 🙂


Mortgage Fee Changes

If you are going to be getting a loan funded Fannie Mae or Freddie Mac there are new few changes coming on May 1.
Upfront loan fees will be changed due to alterations in Loan Level Price Adjustments (LLPAs), which are fees that differ for each borrower based on factors such as credit scores, down payments, property types, and more. These adjustments are connected to credit scores and the size of down payments.
In certain instances, individuals with higher credit scores might end up paying more, while those with lower credit scores could pay less.
What do the fee modifications entail?
The entire fee matrix, based on credit score and down payment, has been revised. Although having an excellent credit score still results in lower fees compared to a poor credit score, the penalties for lower scores will be less severe after May 1st.
For instance, with a credit score of 659 and borrowing 75% of the property’s value, you’ll face a fee equivalent to 1.5% of the loan balance. Prior to these changes, the fee would have been 2.75%. On a hypothetical $300,000 loan, this equates to a $3,750 reduction in closing costs.
Conversely, if your credit score is 740 or above, you would have been charged a 0.25% fee on a loan for 75% of your home value before May 1st. After this date, you might pay up to 0.375%.
If want to see how this affects your borrowing costs fill our our online qualifier or schedule a meeting on our website.


What To Check For On Your Final Walkthrough

If you are ready to purchase a house – you are probably going to be excite and maybe a little nervous.
Here are 5 important things to do on a walkthrough to help lower any anxiety or future surprises. 1. Look For Wet Spots Check the ceilings for wet spots (rings or circles) and discoloration around windows. They can cause issues down the road and be hard to fix! 2. Check The Wiring Turn on the switches, dimmers, check the doorbell, garage door, basically check it all. If things are not working right, there could be an overall wiring issue. 3. Inspect the Bathroom Again look for water damage around toilets, showers and tubs. Also make sure everything is working properly, flush the toilets, check the showers and faucets to make sure the hot water works. 4. Test the hardware Basically check everything from fans to the washer and dryer. Make sure it all works. 5. Run the heat and AC You want to make sure the heat and AC are working properly – turn them on and let it run a few minutes. Finally make a checklist for all the items to be included in the sale and have the owner sign-off or initial it so there’s no confusion or disagreements at closing.
If you want to review with us – just go to our website and schedule a call with our easy online calendar tool.


2nd Home Or Investment Property?

If you’re fortunate enough to be considering buying a second home, but not sure about using it as a vacation house or as an investment property to generate income, understanding the differences between the two types of property is important to determine how much you’ll pay to finance and own it.
A second home is a vacation home, while an investment property is rented out with the goal of generating income. If you’re considering renting out the property occasionally, defining it depends on how much time you spend in it. If you use the property for 14 days or less during a year, it would be considered a rental property and the income earned would be taxable, but you would also deduct the expenses associated with the property.
The distinction between a second home and an investment property is important not only for tax purposes but also when seeking financing for the home. Investment properties usually have more stringent underwriting guidelines than second homes and primary residences because there is an assumed greater risk of default on properties that borrowers don’t occupy. The stricter standards for an investment property might also include a larger down payment requirement.
The tax implications for second homes and investment properties are also different. Mortgage interest is fully tax-deductible for investment properties, and owners can also deduct many expenses related to the property. In contrast, if you have more than $750,000 in mortgage debt between two or more properties, you’ve maxed out the amount you can use to deduct interest. Homeowners who own a second home can only deduct mortgage interest if it falls within the $750,000 total debt limit.
In summary, accurately defining a property as a second home or investment property is crucial to understand the financing and tax implications. Homeowners who wish to purchase an investment property should be prepared for stricter underwriting standards and a larger down payment requirement. Meanwhile, owning a second home is easier to finance, but tax deductions are limited.
To see how much you qualify and borrowing costs for today’s market fill out our quick purchase analyzer on our website.


Mortgage Market Trends

This week we saw mortgage rates fall again according to data provided by Freddie Mac. This continues a streak now stretching four weeks, as homebuyers benefit from lower borrowing costs.
The average rate on a 30 year fixed rate mortgage fell to 6.28% down from 6.32% a week earlier. Freddie Mac chief economist Sam Khater stated, “mortgage rates continue to trend down entering the traditional spring home buying season.”
While rates have fallen there are still challenges for home buyers including low inventory of available for sale in many markets.
If you are thinking about buying a new home this spring check with us to see how much you can get pre-qualified for. You can fill out our 30 second analyzer on our website to get started.


The Tax Benefits Of Owning A Home

With tax day coming let’s focus on the positives and review how owning a home can help lower your tax bill.
To be clear you’ll need to do an itemized return to take advantage of the deductions. And the deductions are just that deductions from the income that is subject to tax, not just taking an amount straight off your tax bill.
Onto the benefits! The biggest one, you may already be familiar with – the interest deduction. The money you pay in interest over the year on your loan is fully deductible on the first $750,000 of your loan or up to $1 million if your loan was originated before December 15, 2017. The other biggie is deducting property taxes. You can deduct up to $10,000 in state and local taxes including property taxes. Another deductible is if you paid points to lower your interest rate – this payment is tax deductible. Finally another popular deduction is one many of came to know last couple of years – the home office. However even though many of us have one now – the deduction is meant only for the self employed – if you work full time for a company it may not qualify. Of course talk a certified tax professional regarding your particular situation and if you want to see how much you can qualify for please fill out our quick qual analyzer on our website!


What Is A Gift Letter?

With housing prices rising in recent years, one quarter of home buyers 23-31 received financial help from friends or family for their down payment and 17 percent of those aged 32-41 also received help according to the National association of realtors.
Down payment gifts still need to be documented accurately in a gift letter.

If you’re in the process of buying a home and receiving financial help from a family member or friend, you maybe asked to provide a gift letter. This document is an essential part of the loan application process and helps ensure that the down payment funds you’re using come from legitimate sources.
A gift letter is a written statement from the person providing the gift (the giver) stating that they’ve given you money for the down payment on your home purchase. It also verifies that the giver had the financial means to provide the gift, which is especially important for FHA loans. The letter should include the giver’s name and where the gift came from, as well as evidence of their ability to gift the money and their relationship to you.
Additionally, the gift letter confirms that the funds won’t ever have to be paid back by you, the recipient. If repayment were required, the lender would have to take that into consideration when evaluating your loan eligibility.
To ensure that both parties are protected, the gift letter should explicitly state that there’s no expectation of repayment or service in exchange for the gift. It should also include a statement that the giver will not place a lien on or make any claims to the property, even though they contributed to the purchase of it.
Of course check with us and we can provide specific details for your unique situation and needs to get started – fill out our quick purchase wizard on our website.