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Getting a Mortgage Loan when You Are Self-Employed

by Masha Halpern

The thought of qualifying for a mortgage can be stressful for many prospective buyers. If you are self-employed, you may have even more concerns. Even if you do not have a regular W2 or tax form from an employer, you can still qualify for a mortgage. There are some tips to follow, however.

Prior to the housing crisis and recession, many self-employed home buyers could simply attest to the amount of money they earned and that was it. Today, that is no longer the case. You will need to provide additional evidence beyond stated income. In order to document your income, you may be asked to provide business and personal income tax returns for the past two years along with financial statements. Documentation is critical when you are applying for a mortgage as a self-employed individual. Ensuring that you have all of the relevant documentation gathered together prior to applying for your mortgage loan can be a critical element in ensuring a fast turnaround. If any additional documentation is requested, provide it as quickly as possible.

You may also find that your chances of being approved for a mortgage loan increase if you are able to demonstrate that you have access to financial reserves in the event your business experiences a downturn. In the end, the lender simply wants to be assured that you can afford the home you are planning to purchase. Paying off consumer debt or consolidating your debts to a lower interest loan may also help in improving your cash flow while providing the lender with greater peace of mind regarding your ability to repay your mortgage loan.

If you are purchasing a home with your spouse who has a regular job, your chances may also be improved if your spouse applies as the primary borrower. You can then be listed as the secondary applicant. If that is not an option, you might consider asking a parent to co-sign the mortgage for you. It should be kept in mind that if you are not able to keep up with your mortgage payments, the co-signor will become responsible for the loan.

Although it is more challenging to obtain a mortgage loan today if you are self-employed, it is not impossible. With some careful advance planning, your dream of becoming a homeowner as well as a business owner can become a reality.

 

Masha Halpern, Broker, CLHMS, GRI
Keller Williams Realty
Masha@MashaHalpern.com
919-414-0337  

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Masha Halpern and The Smart Move Team is your ultimate real estate resource for Chapel Hill, Durham, Carrboro and surrounding areas. Visit my website for detailed information regarding today’s real estate markets.

Masha is a certified member of The Luxury Home Marketing Institute, participates in its annual Leaders in Luxury Conference, and works with The Institute’s thousands of members worldwide to share information about current listings.

Masha is also a certified member of Keller Williams Luxury International and is also a member of Cyber Stars International – Top Realtors Using Technology – a group dedicated to taking the best and latest technological advances and applying them to real estate advertising and marketing for her clients in all price points. Masha Halpern can be contacted for a private consultation by calling 919-414-0337 or by visiting www.TheSmartMoveTeam.com.

Know Your Debt-To-Income Ratio

by Masha Halpern

Knowing your debt-to-income ratio is important when you find your Chapel Hill dream home and are ready to apply for a mortgage.  Your lender will look at it and see if you are able, financially to begin this journey.  If you are not familiar with your debt-to-income ratio, below you can learn more about it and how it affects your financing.

Debt-to-income ratio is simply a comparison of the money you earn to the money you owe. It includes credit card debt, existing mortgages, auto loans, and any other personal debt.

Your mortgage lender will look at your Debt-To-Income (DTI) to evaluate your ability to afford your new mortgage. You should have a good idea of what your DTI ratio is before you approach a lender or consider buying a new home.

You ultimately want to achieve a low DTI ratio. A high number means that you have less disposable income and less ability to maintain the home once you purchase it. With foreclosures at an all time high, lenders are not willing to assume any additional risk in lending.

Most lenders seek DTI ratios in the 20-36% range or lower, with no more than 28% of debt dedicated to the mortgage itself. While some lenders will consider higher ratios, DTIs in the upper 30% range are considered high risk.

There are several different calculators available online to help you determine your ratio, and you can always check with your financial institution for guidance on determining your DTI ratio.

Here’s a simple formula:

  • Add all your monthly payments (mortgage or rent, car, credit cards, any other debt payments)
  • Add your gross income (before taxes), bonuses, alimony, or any other outside income and divide by 12
  • Then divide the total number in (1) by the final number in (2)
  • The result is your DTI ratio

 

If you are either ready to buy a Durham home or are just interested in  your financial health, it is a great idea to know your DTI and understand the steps to lower it and become as close to debt-free as possible.

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The Changing Face of Lending – Getting a Home Loan in 2011

by Masha Halpern

We’ve weathered a tough year in the mortgage market and if you’ve been waiting it for it to turn around, don’t expect much of a change in 2011. The market and mortgage collapse have changed the face of lending for some years to come. Planning on buying a new home in the new year? Here are five things you should be prepared for:

  1. It’s tough to get a mortgage. Lenders today face a couple of huge challenges – they just can’t get on the hook for more bad mortgage debt and they must operate under strict regulations on how much real estate they can have in their portfolios. How does this affect you? Your bank has no more ‘easy money’ for you. If you are borrowing outside of FHA backed guidelines, you may have a hard time getting that loan approved and closed.
  2. Good credit counts more than ever before.You can be turned down for a mortgage on the credit criteria alone. A good credit score will affect your ability to get a loan and the interest rate attached to it. If your credit is less than perfect, get busy now to repair it.
  3. No money down is no more. You are unlikely to find any lender that will offer 100% financing. Be prepared to hand over as much as 20% down, less (and more negotiable) on FHA loans. Your lender will also look at the status of your cash reserves, to make sure that you can handle your first payments
  4. Banks are cutting off their ARMS. Adjustable Rate Mortgages contributed to the housing bust and most lenders are wary – and you should be too. With interest rates so low, you are probably better off with a 30 year fixed, especially if you are planning to be in your new home for some time. In a volatile economy, an adjustable rate mortgage can blow up quickly if you haven’t prepared properly for it.
  5. Interest rates should stay low in 2011. While rates have crept up a bit recently, don’t expect a significant increase in mortgage rates this year. Experts see them hanging below 5%, so this could be the year to take action if you have been hesitant about buying a new home.

Overall, the mortgage business is still shaky. The good news is that you will still find great homes at low prices and that interest rates should remain favorable in 2011. The tricky part will be getting a lender to handle your loan.

 

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Understanding Your Debt to Income Ratio

by Masha Halpern

If you have found a home you want to purchase and are applying for a mortgage, your lender will look at what is called a debt-to-income ratio. If you are not familiar with this, below you can find more information as well as why is it important to you and how it effects your financing.

Debt-to-income ratio is simply a comparison of the money you earn to the money you owe. It includes credit card debt, existing mortgages, auto loans, and any other personal debt.

Your mortgage lender will look at your Debt-To-Income (DTI) to evaluate your ability to afford your new mortgage. You should have a good idea of what your DTI ratio is before you approach a lender or consider buying a new home.

You ultimately want to achieve a low DTI ratio. A high number means that you have less disposable income and less ability to maintain the home once you purchase it. With foreclosures at an all time high, lenders are not willing to assume any additional risk in lending.

Most lenders seek DTI ratios in the 20-36% range or lower, with no more than 28% of debt dedicated to the mortgage itself. While some lenders will consider higher ratios, DTIs in the upper 30% range are considered high risk.

There are several different calculators available online to help you determine your ratio, and you can always check with your financial institution for guidance on determining your DTI ratio.

Here’s a simple formula:

  1. Add all your monthly payments (mortgage or rent, car, credit cards, any other debt payments)
  2. Add your gross income (before taxes), bonuses, alimony, or any other outside income and divide by 12
  3. Then divide the total number in (1) by the final number in (2)
  4. The result is your DTI ratio


Whether you are ready to buy, considering a home purchase, or are just interested in your financial health, it’s a good idea to know your DTI and understand the steps to lower your ratio and become as close to debt-free as you can.

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Photo of Masha Halpern - Boutique Real Estate Real Estate
Masha Halpern - Boutique Real Estate
Keller Williams Realty
101 Cosgrove Avenue, Suite 200
Chapel Hill NC 27514
Direct 919-951-1780
Toll Free 877-478-4669
Fax: 919-928-9030




Masha Halpern of Keller Williams Realty provides real estate services in the Chapel Hill, Carrboro and Durham, North Carolina area including real estate services for buyer, sellers and those relocating to the surrounding areas of Apex, Bahama,Cary, Efland, Hillsborough, Holly Springs, Mebane, Raleigh, and Wake Forest. Search for homes in Chapel Hill, Carrboro, Durham or the surrounding communities.  Request a market analysis for your North Carolina property.  I list and sell residential real estate, investment property, vacant land, lots for sale in Chapel Hill, Carrboro and Durham, North Carolina area.

Chapel Hill, Carrboro and Durham, North Carolina real estate and homes for sale in North Carolina - Masha Halpern & The Smart Move Team