Tips to qualify for home mortgages for the self employed – most people usually think that the mortgage process was meant for the traditional W-2 employees. People who are self-employed can as well qualify for mortgages. But of course many are not aware that this is very much possible. Here are a few tips to help self-employed individuals which if taken into account will qualify you into the beautiful world of mortgages.
Look at your previous two returns – this is the procedure most lenders use in calculating your monthly income:
They will first ask for your tax return copies from the previous two years. They will then analyze each form’s adjusted gross income after which they will add together the two numbers and then divide by 24. A reflection of your “average” monthly income for the previous two years will be attained through this method.
This monthly income figure will be the one the lender will base their decision on. It is a very simple equation. So if you want to have a sniff at the amount of loan you can qualify for, just add the numbers by yourself. And if it is for purposes of mortgages, then this represents your monthly income.
Fill out the paper work – lenders nowadays insist at looking at your tax form, and this form they will collect directly from the IRS. After all isn’t it possible that you may supply them with forms that are made up of conjured numbers. You will then be required to fill out IRS form 4506-T. this form gives permission to the lender to request IRS to provide them with your tax records.
Debt-to-income ratio – we have already mentioned that your income will form the basis of your mortgage qualification. But how is your application affected by the number?
Most lenders will give you an opportunity to borrow a specific percentage of your income. This is usually referred to as “debt-to-income” ratio (DTI) and here two numbers are what lenders will be looking for:
Front –End – debts repayment relating to your house should not be more than 28% of your income.
Back – End- you should have less than 36% total recurring debt payments of your income.
How then can you possibly qualify for large home mortgages? First try to get rid or reduce your other debt payments. Definitely your mortgage tool Back-end DTI ratio will improve and this will help you qualify for bigger home mortgages.
Find non-HOA properties – you can possibly opt to buy a home that does not have compulsory homeowner association fees. Your total mortgage circulation usually has these fees.
Sherwood Mortgage Group (for Toronto mortgage broker in Ontario, ON So if you are self employed and you are dreaming of that wonderful home, take note of these few important tips.