Can I refinance if I am self-employed? What are the qualifications that I must meet? How long do I need to be self-employed? These are just a few of the questions that many self-employed people ask when they are looking to refinance their mortgage on their home. Yes, you can refinance your home, even if you are self-employed. Most lenders will want to see a 2 year history of being self-employed, but some lenders will make exceptions on that requirement.
Refinancing when you are self employed can also be accomplished by taking advantage of programs which explicitly allow business tax returns and/or cash in business bank accounts to be used for qualification purposes.
Many lenders will also look at the past 6-12 months personal bank statements of self employed borrowers and determine an average income from the monthly deposits into the account.
Refinancing when you are self-employed often occurs using a stated income loan. There is less documentation required from lenders making it easier for a self-employed borrower.
Many self employed have been penalised in the past for their status, either charged higher rates or rejected entirely as lenders regarded them as higher risk than their full time, employed counterparts. However, there are mortgage lenders that realise there is a growing number of self-employed people who make make ideal borrowers and who have different needs to those who can rely on a regular income.
Many people that are self-employed use some type of alternative income documentation program when they are refinancing. The reason for this is because after writing off all of their tax deductions for their end of the year tax returns, they show a considerably less amount of income than what they actually made for the year.
One type of income documentation program that self-employed people use is what is called a stated income program. A stated income program is when a borrower does not want to document his income using traditional methods, such as W2's, tax returns, and/or pay-stubs, they are allowed to state their income on the loan application. The income stated should be the true amount of money that the borrower makes and needs to be reasonable for what they do. As you can see their is more risk to this type of loan and the interest rate will normally be slightly higher than a traditional full income documentation loan.
If you are self employed, many lenders will require you to prove this by presenting a copy of your business license. If you are in a business where a license is not required, you may be required to present a letter from your CPA stating that you are self employed and have been filing your taxes in accordance with this status (e.g. "Schedule C" on a 1040), and depending on the level of documentation you are choosing, business tax returns, bank statements or stated income. Be prepared to provide references as needed of some of your best clients or customers. If your business i homebased, providing websites and yellow pages listings can be helful as well. If providing this level of documentation is problematic, talk to us about an alternative income, stated income or no income documentation program.