There are many steps involved in purchasing a home. One of the most critical steps is trying to find a mortgage with a favorable interest rate attached to it. After all, the price tag of the home is only one of the factors that will dictate someone’s budget.
The interest rate on the loan will be a major factor in whether or not someone can afford a home that they are interested in. People work many different jobs and those who are self-employed might feel like they are having a harder time qualifying for a loan.
While people with a W-2 job might have an easier time looking for a loan, those who are self-employed don’t have to change jobs to apply for a home.
There are mortgage products available and certain actions that 1099 individuals can take to get the home of their dreams.
Combating Higher Interest Rates
One of the major problems that lenders have with giving out a loan to someone who is self-employed is that the income is not consistent from month to month. This means that the banks often see these individuals as higher clients.
They might try to jack up the interest rates in response to this increased risk. Those who have a 1099 might be able to combat these interest rates by asking to eliminate upfront points or to waive things such as origination fees. These can help offset the costs associated with a slightly higher interest rate.
Using Business Expenses to Reduce Taxable Income
The income that someone makes from year to year plays a major role in determining whether or not someone will get the loan they are looking for. One of the problems of a 1099 employee is that their taxable income is reduced by using business expenses that can be written off as a sizable tax deduction.
While this is a smart tax move, it also looks like someone makes less money than they actually do. Try to explain to the bank that these expenses are put in place to reduce the amount of money paid in taxes, not the overall income.
Improving the Credit Score of a 1099 Individual
There are also steps that someone can take to look more attractive. Paying off debt can help raise the credit score, making them look more attractive.
If a buyer is willing to increase the size of their down payment, this will also reduce the risk to the bank, making someone look more attractive when applying for FHA steamline rates.
Finally, producing more documentation and proof of income will make someone’s income stream look more consistent. This will also make them a more attractive borrower.
FHA Steamline Rates for Self-Employed Individuals
Just because someone is self-employed doesn’t mean it is impossible to get a home loan. There are actions that these individuals can take to make themselves more attractive to banks and lenders.
Take the time to shop around and see what is available. Someone is willing to provide a competitive home loan to individuals who have a 1099. Trust the professionals to provide an attractive home loan.
