Since the lending guidelines radically changed in 2008 it’s been more difficult for self-employed borrowers and independent contractors to get mortgage financing.  Prior to 2008 many borrowers with this type of income would get “no doc” home loans where they would not have to fully document their loans.  But in 2008 all the “no doc” loans went away and now self-employed borrowers, independent contractors and everyone not paid as a w-2 employee have to qualify based on their most recent two years of tax returns.

So to get FHA loan the first step will be to supply your last two years tax returns for qualification.   So if you are going to be buying in 2010, you will need your 2008 and 2009 federal tax returns all pages,  all schedules.  If you file K1’s or corporate returns you will also need to send those returns in.  For FHA loan approval for self-employed borrowers, the FHA underwriter will take the NET business income off your 2008 and 2009 federal tax returns and average the two years.  So if your NET in 2008 was $80,000 and your NET in 2009 was $90,000, the FHA loan underwriter will use $85,000 as your qualifying income.

It is very important to realize that it is the NET income that will be used for FHA loan approval, not your gross income.  Many self-employed people write off many expenses, so their gross may be high, but their NET may not be low.  This can be a challenge for many.  However, there are deductions that can be added back into your NET income to increase that figure.  We are a specialist at knowing the FHA guidelines and we are able to have many deductions added back into NET income helping self-employed borrowers.  Here is a list of deductions that can be added back to NET income:

• Business use of home
• Depreciation
• Loss carryover’s from previous years
• Mileage depreciation rate (40% of the total per mile auto expense rate)
• and more

Also, if you operate as a corporation and pay yourself W-2, we will still need to look at your last two year tax returns.  If the corporation is showing a loss, that loss amount may have to be deducted from the W-2 income you pay yourself.

The best thing to do if you are self-employed and want to qualify for a FHA loan (or conventional loan) is to call me and send me your federal tax returns so I can go over them in detail and let you know how much income we will be able to count. 

Here are some general highlights of FHA loans:

• Only 3.5% required for FHA loan down payment (vs. 10% down in most cases on conventional loans in California)
• Maximum FHA loan up to $729,750 in many counties of California and other expensive states
• FHA loan interest rates at historic lows (the U.S. Government is currently buying Mortgage backed securities at an unprecedented rate artificially holding down interest rates…this will not last that much longer)
• Seller can credit up to 6% of the purchase price for FHA loan closing costs
• FHA streamline refinance to lower rate options available once you have an FHA loan

Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions at all about getting approved for a FHA Loan.

Warmest Regards,

Rob Chomentowski

Sr. Loan Officer (and FHA specialist)

858-922-7899

No Comments

No comments yet.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.