From a credit point of view, you "self-employed" individuals must feel that demonstrating your ability to "walk on water" is a prerequisite to mortgage financing.
The self-employed individual, or small business owner, is treated like a pariah on society, even though his/her function in this same society provides most of the services the rest of us require. In latter years, if you were self employed, you had to show three years worth of "net" after tax income, which would be averaged out to provide a lender with an income to be used for qualification purposes. As most of you readers know, all lending institutions figure out what you can afford by applying the same formula, no matter your circumstance. For all salaried employees, the income used is the gross, pre-tax income, while for our self-employed individual, the net amount is used. For normal applicants, the current income is used while for the poor self-employed sap, the average over three years is the benchmark. Lately, I am pleased to say, some lending institutions recognize the need for this "pariah" and will treat this person as (almost) human. Good news is on the horizon. Some lending institutions now relate to the self-employed by utilizing an income that is self-declared from the individual, or income that is calculated by the amount of the payroll deposit to one's bank account. Since this is still in its infancy, certain rules are still in effect, that will seem more stringent than for the salaried employees. Each deal is underwritten on its own merit, but for the sake of this article, general terms dictate that the individual must have adequate down payment (if purchasing), or adequate equity if refinancing, and (very important) good credit ratings from your existing creditors. The property being purchased or refinanced must be marketable and in an urban environment. For those of you purchasing, who have a problem showing enough income to qualify, if you have 25% down payment from your own resources, or a combination of personal resources and secondary financing, you can now present that offer to purchase with confidence, knowing that your credit history and down payment has more or less eliminated the need to qualify under income. For those of you under lousy credit terms because of your self-employment income, you may now refinance under better terms. If your credit is good, you can refinance up to 75% of the present value of your home to payout existing mortgages, and/or alternate credit. You may also wish to consolidate alternate debt but keep your existing first mortgage. Secondary financing is now available at favorable rates to allow you to do just that. Those of you who are self-employed and who own a house, may have had problems in the past with getting a secured "operating line of credit" for your business or just for emergencies. A few lending institutions will now honor your request for this type of credit facility without too much regard for your provable income. Your house's equity and your good credit are now worth something. Most lending institutions offer posted rates and discounted rates. For a purchase, normal lenders will offer normal applicants less than the posted rates. For the self-employed individual, normal rates were always above the posted rate. At the present time, it is my pleasure to announce that self-employed individuals with good credit can now get first mortgage rates that are equal to the bank's posted rate or less. It may be time for normal lending institutions and insurers to accept that self-employed individuals are the backbone of our economy. Those who have demonstrated the ability to pay their bills on time should be granted a closer look than just income confirmation averaged over three years.