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National Mortgage Rates 25 May 2012
| Loan Type | Today | +/- | Last Week |
|---|---|---|---|
| 15 yr fixed | 3.03 |
|
2.87 |
| 30 yr fixed | 3.72 |
|
3.50 |
| 5/1 ARM | 2.75 |
|
2.50 |
Rates may contain points
Self-Employed and Can’t Refinance?
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- Kirk Haverkamp | October 11, 2011
Refinancing a mortgage can be a challenge these days, particularly if you’re self-employed or have other types of irregular income.
Even well-to-do borrowers with significant equity in their homes may find it difficult to qualify for a mortgage refinance if lenders detect any sign of uncertainty about their finances. Because well-off borrowers often have complex finances, demonstrating the stability of those finances to a lender’s satisfaction can be difficult, particularly in the present economic climate.
Financial status no guarantee
Case in point: I recently golfed with an acquaintance who’d been turned down repeatedly when he tried to refinance his mortgage. This was a man of considerable means, who had owned and run several major companies in addition to a broad array of other investments, and had never missed a debt problem in his life. He had substantial equity in his home, but couldn’t get approved to refinance to a lower rate.
The problem, it seems, is that he’d been scaling back his business activities in recent years, stepping down from the company where he’d served as president and selling off a number of the income properties he’d invested in. It didn’t matter that he still had a high net worth; to the banks, this was someone whose income had taken a dive – and that was enough to scare off potential lenders.
Falling income = rejection
As a rule of thumb, lenders are going to be reluctant to extend financing to anyone whose income has fallen by 20 percent or more over the past two years. With the recession, that’s happened to a lot of businesspeople and self-employed types. And if you’re thinking of retiring or simply scaling back at work, but are also in the market for a refinance, you want to be sure to take care of the mortgage before you make any major changes in your work life.
If you’re self-employed, lenders are going to want to see you’ve been generating a reliable income from the same business for two years. That can be a problem for entrepreneurial types who cash out of one successful venture to start up another – these days, many lenders want to see an established history in your current business.
Lenders will typically want to see your last two years of tax returns, along with a balance sheet and profit and loss statement from your business, a letter from your account and a business license or incorporation papers if your business has them.
The tax deduction trap
One of the things that often trips up self-employed borrowers is tax deductions. Because lenders rely on income tax returns as a way of verifying income for self-employed borrowers, claiming a lot of tax deductions can leave you with too little income to qualify for a mortgage or refinance.
Some brokers and financial advisers will actually recommend taking fewer deductions for a year or two in order to qualify for a home loan. Of course, your savings from refinancing to a lower rate have to exceed what you’d save on your taxes in order to make it worthwhile.
There are also ways to add certain deductions back into your adjusted gross income for purposes of qualifying for a mortgage, such as depreciation costs and certain expenses. This is one reason why it helps to have an experienced loan officer or broker when applying for a refinance.
In fact, an experienced mortgage broker can be a useful ally to have, particularly if you’re self-employed and having trouble qualifying for a mortgage. Though you do pay a little more for a mortgage broker’s services than you would if you arranged the same mortgage yourself, a broker’s knowledge of the industry and familiarity with the requirements of various lenders can make them well worth it for borrowers with special financial situations.
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| Loan Type | Today | +/- |
|---|---|---|
| 30 yr fixed | 3.72 |
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| 15 yr fixed | 3.03 |
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| 5/1 ARM | 2.75 |
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Rates may contain points
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