Securing home loans for self employed these days is not that easy. In fact, banks and other financial institutions shy away from risky investments mainly to protect their financial interest and most importantly their reputation. Many banks and credit institutions have filed bankruptcy over the recent years due to the subprime mortgage crisis, which is why obtaining a home loan if you are self employed is much difficult compared if you are a salaried employee. However, there is no need to frown, since there are still lenders and local banks that might be willing to offer you the loan that you need.
In this regard, here are two types of home loans for self employed borrowers that you might want to look into:
No Documentation Home Loan
With this type of home loans for self employed borrowers, lenders won’t require income verification. This is the perfect type of loan to pursue for borrowers whose income tax return shows business loss or inadequate profit. However, since lending money to a borrower with unverifiable income presents great risk to the lender, it is expected that the interest rate of the loan will be way higher. Compared to full documentation home loans for the self employed, the no documentation type will surely have premium interest rates.
Stated Income/Stated Asset Mortgage (SISA)
Also refereed as low documentation loans, this type of mortgage will be based from the income you declare to the lender or the bank. Though the lender won’t be verifying how much you really make, it is likely that they will have to verify the main source of your income. That said, you need to be ready to provide them with a list of your clients as well as other sources of your cash flow. Like with payday loans for self employed, you might be asked to submit documentations including the IRS Form 4506 or 8821. IRS form 4506 is basically a copy of your income tax return from the IRS, which will be requested by the borrower. Since it will be obtained directly from the IRS, there is no way that this document can be falsified. Meanwhile, form 8821 is a document that authorizes the lender to obtain a copy of your income tax returns for verification purposes.
It is critical that you closely examine both options to help you determine the best home loans for self employed individuals that you should apply for.