Recent requests for FHA Financing for self-employed borrowers have come through our Winter Haven office.  It’s an issue that is causing a good bit of frustration for some self-employed folks as they attempt to secure home loan financing.

What’s at issue here, of course, is whether the deductions taken by the self-employed borrower have brought their reported income level down to a point that fails to support the monthly payments of the loan for which they are applying.

No More Stated Income Home Loans for the Self-Employed

Before 2008, the “no doc loan” or “stated income loan” made it possible for self-employed Winter Haven, Florida borrowers to get qualified for an FHA home loan.  However, abuse of these types of loans ran rampant - and led to (albeit not solely) to mortgage and home loan situation we find ourselves in today.

As such, FHA mortgage underwriters now require that self-employed borrowers provide 2 years of tax returns to document their income.  As previously mentioned, this can be a bit problematic if your taxable income, as stated on your tax documentation, is too low to support the loan you wish to take out.

The following points outline a few steps you, as a self-employed individual,  can take in terms of mapping out your future tax situation in order to maximize your ability to qualify for an FHA home loan.

When you apply for your Winter Haven FHA home loan, you will have to provide your tax returns under one of the following situations (Note: this list is meant for illustrative purposes and is not exhaustive):

• You are a self-employed sole proprietor or business owner (includes LLC’s, S Corps, partnerships, etc…)
• More than 25% of your income is commission-based
• You own rental property from which you derive income
• You receive income from dividends, royalties or capital gains that you are using as income to qualify for a loan
• You have income from partnerships or corporations (where you are less than 25% owner) that you want to use to qualify for a loan
• You receive 1099 income that you plan to use to qualify

Your FHA underwriter will take a look at your tax returns in order to verify your income. Normally, she or he will average your net income from the last 2 years to calculate your qualifying income.  (Here’s where your eyebrows may begin to rise a bit…)

See, as part of the American Dream - self-employed business folks are allowed to deduct things from their taxes that regular W-2 employed folks are not.  This is great when tax time rolls around! (Yeah!)  However, too may deductions can cause a real “hitch in your proverbial giddy up” in terms of getting your FHA home loan application approved.(Boo!)

Here is an Example…

If you apply for an FHA mortgage in 2009, the underwriter will average together your 2007 and 2008 tax return income.

One common problem here is that many business owners have many business expenses that they write-off bringing their taxable income down to a very small amount that will not qualify them for a home loan.

The underwriter will only count your net income after most of your business expenses.   As most business owners write-off a good amount of their income, you can see how they might be finding it tough to qualify for a home loan today.

To Right the Ship of Tax Deduction… Try Bolstering Your Reported Self-Employed Income

Tax deduction blues got you down when you’re trying to qualify for your Winter Haven FHA Home loan? Well, consider this.  A good number of the deductions you write off an be added back into your bottom line in order to beef up the total earned income number your underwriter takes into consideration.

While these may not add in enough income to support every self-employed FHA home loan application, it’s advisable that you take a look at these “add ins” now so that you can properly plan ahead.

Here some of the most common deductions you may add back into your net income total:

• business use of home (such as a home office)
• business vehicle mileage
• depreciation
• depletion (this is not a common write-off and most will not have this)
• casualty losses dues to theft, fire or natural disasters
• losses carried over from prior years (since the loss was in a prior year, it will not be counted against your qualifying income)
• one-time extraordinary expenses

Since these expenses may be added back, you might consider maximizing them on your future taxes if you plan to buy a home using an FHA home loan.

As with all of my comments and insights found on this site, please make sure that you talk to your CPA or tax professional and explain to them that you’re trying to qualify for an FHA mortgage.   They’ll be able to help you maximize your net income and hopefully, with some luck, you’ll meet the required income level for FHA  home loan qualification!

Bonus Tip for Self-Employed FHA Mortgage Borrowers

One last thing to consider as a self-employed FHA mortgage applicant is the fact that you may use a co-borrower (even a non-occupying co-borrower) to help you qualify.   If you find that adding in the allowable deductions listed above fails to get you to that “magic number,” consider recruiting co-borrowers who can show the required income to help you get your FHA home loan approved.

Apply Online for Your FHA Mortgage Today

Kevin Sandridge Florida Mortgage Pro Signature Home Funding 410 Laurel Cove Way Winter Haven, FL, 33884	Mobile: 863-604-3019 Fax: 888-496-0265 Email: kevin.s@sigfunding.com http://www.floridahomeloansspecialist.com
Building effective relationships one step at a time…
Visit MyBlogLog and get a signature like this!

Related posts:

1. Winter Haven, Florida: Get FHA Downpayment Loans from Immediate Family With Downpayment Assistance Programs (DPAs) now out of the picture,…
2. Winter Haven, Florida FHA Activity Increasing - US Sees FHA Loan Limit Increase FHA home loan lending here in Winter Haven, Florida has…
3. The $8,000 Tax Credit - What Winter Haven, Florida Homebuyers Need to Know I’ve received a lot of questions about the recent stimulus…

HUD announced that effective for any FHA case number assignment on or after April 1, 2009 the max LTV for cash out refinances may not exceed 85%.

The good news is that HUD is implementing it on a temporary basis while it analyzes the performance of these loans and the industry to determine whether it should be a permanent measure.

The Mortgagee Letter also states that any non-occupant co-borrower being added to the note must occupy the property and that they can’t be added in order to meet credit underwriting guidelines for cash out.

Keep in mind that is not required for non-occupant co-borrowers in purchase or rate/term refinance transactions. In fact, FHA allows max financing for borrowers related by blood, marriage or law (spouses, parent-child, siblings, aunts, uncles, nieces, nephews) and does not impose any additional underwriting criteria on such transactions, including specific qualifying ratios that the occupying borrower must meet individually.

For instance, we’ve had borrowers who were juniors in college (must document 2 years education after high school) purchase a home using mom and dad as non-occ co-borrowers with max LTV of 96.5% (if parent is selling to a child, the parent cannot be the co-borrower on new mortgage unless LTV is 75% or less).

It is not too late to apply and close your loan prior to the effective date if you are prompt contacting me. First Choice Bank Mortgage Division has in house underwriting and closing. While many Banks are currently backed up in their underwriting departments for weeks, my underwriting department is averaging 3 days.

Gerald Santoro

732-536-3300 ext 310
Email Gerald Santoro
Licensed Mortgage Banker
Department of Banking and Insurance

Related posts:

1. New Jersey - First Choice Mortgage - Middlesex County FHA/VA Our Products: FHA Refinances FHA Purchases FHA Streamline FHA Short…
2. Making Home Affordable - New Jersey Hope for Homeowners Homeowners were lent a hand this week by the Obama…
3. First Time Home Buyers Best Bet, FHA Changes Double wide and single wide manufactured home FHA loans available….

The Obama administration will try to be " creative " in finding a solution to the AIG bonus fiasco , the White House's economic adviser said on Tuesday. Speaking on CNBC, White House National Economic Council Chairman Lawrence Summers said…(read more)

The Federal Deposit Insurance Corporation extended a program that allows bank holding companies to issue government-backed debt on Tuesday. The FDIC extended the deadlines to issue debt and for the debt to expire by six months each for the Temporary Liquidity…(read more)

This clip is from my local Sunday paper’s business section. It illustrates why researching mortgages can be confusing (and annoying). We look to our newspapers to tell us the truth; to provide indisputable facts. In this case, MSM=FAIL. Aside from the spelling mistake in the headline, it looks like…

Read the full post at http://www.themortgagereports.com

Thousand of Indiana homeowners will benefit from new increased FHA Home Loan Limits with fixed rate refinance loans up to $410,000 in several  designated high cost areas.  Home refinancing has never been easier with cash out loans available up to 95% for qualified Home Owners. In an effort to curb the rising foreclosure rates, the Housing of Urban Development (HUD) raised the Indiana mortgage maximum limits for 2009 and the loan changes can be seen below by county.   Also, available are FHA Streamline, Energy Efficient, and many more FHA Home Loan products.

If you have any questions or would like more information on how to become qualified for a FHA Home Loan. please give me a call or download our Mortgage Planning Questionnaire.

Related posts:

1. Indiana FHA Loan Limits There are some new Indiana FHA Loan Limits for 2009…
2. Revised Indiana FHA Loan Limits Well, with the new stimulus package Indiana FHA Loan Limits…
3. Great way to buy your first Indiana Home I was sitting in a class last night after speaking…

The U.S. housing sector showed unexpected strength in February, with housing starts and building permits both rising against expectations for continued declines. U.S. housing starts rose to an annualized pace of 583k, representing a month-over-month increase…(read more)

Buying a New Jersey home vs. renting is a big decision that takes careful consideration, however, the rewards of home ownership are  significant.

For many years, purchasing New Jersey real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.  Since it is a buyers market, having a qualified New Jersey real estate agent is your best resource for finding that great deal in your local market.

There are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.

The numbers are staggering if you look at it this way -  If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!

However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down.

In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

There are many different types of loan programs available, including FHA mortgage programs with as little as 3.50% down payment required. FHA lenders rule that the mortgage payment, including principal, interest, taxes and insurance (PITI) should not exceed 35 percent of your gross income, and the PITI plus other long-term debt (car payments, etc.) should not exceed 43 percent of your gross income. These are general guidelines and exceptions are made with compensating factors.

There are also fantastic renovation loans available through the FHA which allows a buyer to borrow extra monies to fix that ” fixer upper” , improve the energy efficiency, buy new appliances, etc. This is a great time to be in the market for a starter home. Prospective buyers should speak with a qualified Mortgage Professional to review their qualifications and budget and assist them on the path to “Home-ownership”!

Housing is an expense that takes a big bite out of the monthly budget. If you are a renter and feel that “home” is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a home owner.

———–

Gerald Santoro

732-536-3300 ext 310
Email Gerald Santoro
Licensed Mortgage Banker
Department of Banking and Insurance

Related posts:

1. First Time Home Buyers Best Bet, FHA Changes Double wide and single wide manufactured home FHA loans available….
2. FHA Mortgages in St. Louis - Zero Down Payment Many mortgage programs that allowed you to buy a new…
3. Fred Chamberlin, Eugene Loan Guy, FHA Mortgage Expert, VA Loans, USDA Loans About Fred Chamberlin with Alpine Mortgage Planning in Eugene: With…