If you are an entrepreneur or a small business owner, you probably know that there are a lot of advantages to this lifestyle – the freedom, the exciting challenges, the opportunities and the ability to make a living doing what you love.
However, you also know that being a small business owner can make some things more challenging – such as apply for a mortgage for your home.
Many small business owners find it tough to get approved for a mortgage, because their income can be erratic and the banks want to see proof of consistent earnings over a significant period of time.
However, it is possible to qualify for a loan as a small business owner. Here are some important things that you need to know about the process:
Ask Your Mortgage Lender What They Look For
If you ask your mortgage lender, they will probably offer you a checklist for putting together all the information needed in your mortgage package. It should have instructions on what specific documents you need to include if you are self-employed.
Filling Out The Right Forms
When applying for the loan, you will need to fill out IRS Form 4506-T, which is a Request for Transcript of Tax Return. This is basically a form that will allow the lender to look at your tax returns from the IRS, which shows proof of your earnings.
You are not able to show lenders copies of your tax returns – they must get them directly from the IRS themselves.
Submitting A Profit And Loss Statement
It can also help to ask your accountant to prepare a Profit and Loss Statement, which highlights the amount of money that you have brought in – compared to the expenses of setting up your business.
If you present several of these on a quarterly basis, it will prove to the bank that your business is growing and is profitable enough to cover your mortgage.
The important thing to remember is not to give up on the idea of owning a home just because you are a small business owner. Ask your accountant for help and take the time to submit the right proof of earnings, so that you get the mortgage for your dream home.
For more real estate advice, call or email your trusted real estate professional.
According to the National Association of REALTORS®, existing home sales surpassed both May sales and expectations for June. Sales of previously owned homes increased by 2.60 percent in June and reached a seasonally adjusted annual level of 5.04 million sales. June’s reading was the third consecutive monthly increase in sales of existing homes and was the highest reading for existing home sales in eight months. Existing home sales remain 2.30 percent below the June 2013 reading of 5.16 million sales of existing homes.
Analysts projected sales of 5 million existing homes for June against May’s initial reading of 4.89 million sales of previously owned homes; the May reading was later revised to 4.91 million sales. Lawrence Yun, chief economist for the National Association of REALTORS® said that market conditions are becoming “more balanced,” and noted that inventories of existing homes are at their highest level in over a year and that price gains have slowed to much more welcoming levels in many parts of the country.
Housing Market Headwinds Declining
After a particularly harsh winter and lagging labor reports, analysts forecasted lower annual sales of existing homes for 2014 than for 2013. Labor markets are stronger according to recent labor market reports and a declining national unemployment rate. Steady work is an important factor for families considering a home purchase; as labor markets improve, more would-be homeowners are expected to become active buyers.
Housing markets are not without challenges. In recent unrelated reports, the Federal Reserve has noted higher than anticipated inflation may cause the Fed to raise its target Federal Funds rate in the next several months. Gas and food prices, important components of consumers’ household budgets continue to rise and could slow save toward a home for some families. Steve Brown, president of the National Association of REALTORS®, said that first-time and moderate income buyers continue to deal with affordability due to increased FHA costs and tight mortgage credit. Relief may be in sight as a slower pace of home price growth suggests that more buyers may be able to afford homes.
FHFA House Price Index Reports Gain in May Home Sales
FHFA released its May index of home sales connected with mortgages owned or backed by Fannie Mae and Freddie Mac. The index posted a month-to-month gain of 0.40 percent in May and a year-over-year gain of 5.90 percent year-over-year. FHFA said that increased sales were driven by a 9/60 percent increase in sales in the Pacific region and that average home prices remain 6.50 percent below April 2007.
Are you shopping for a home or a new mortgage? If you are interested in finding the best possible financial product, it is important to consider the benefits of selecting a Qualified Mortgage. With so many different types of loan products to choose from and financial terms to learn, schooling yourself on the mortgage market before you buy your first home or apply for your first refinance mortgage may seem like a daunting task.
Luckily, there are resources that are designed to help you learn the basics of products and terms so that all consumers have the power to inform themselves before securing a loan.
What is a Qualified Mortgage?
There are many different categories of home loans that individual loan products can fall into and one of these categories is simply referred to as a Qualified Mortgage. Qualified Mortgages, also referred to as the QM in the industry, is a product that has been approved as a qualified product because it has stable features that benefit you as a borrower.
All lenders who are interested in offering a Qualified Mortgage must make a good-faith effort to assess your income and your debt-to-income ratio to ensure that you are able to repay the loan before you take the loan out. All lenders must meet a long list of certain requirements that are free of harmful features that could affect a borrower’s ability to pay.
Common Requirements of Qualified Mortgages
The main purpose of a qualified mortgage is to protect borrowers from forms of predatory lending. The standards that the loan must meet are set by the Federal government. In addition to assessing the borrower’s ability to pay before approving an application, lenders must meet loan product requirements that are very specific in nature. Some of the harmful features that a QM product is not permitted to have include:
- Negative Amortization: This feature affects consumers by allowing principal to increase over time.
- Interest-only Periods: Where payments are only applied to interest on the money borrowed.
- Balloon payment requirement: A requirement where borrowers must pay a large payment at the end of the loan term.
- Long Terms: Loans cannot have terms longer than 30 years.
- A Large Debt-to-Income Ratio: There is a limit in how much income that can go to monthly debt payments. This limit is 43% for a QM.
How Can a QM Benefit a New Home Buyer?
As you can see, there are safeguards built into a Qualified Mortgage that are designed to protect you from entering into a long-term binding loan contract that puts you in an unfair position. There are also legal protections that are designed to protect lenders who are committed to designing qualified mortgage products. You can sign a loan that you can afford to repay, have payments applied to your principal as well as interest, and become a homeowner without unnecessary stress.
Last week’s economic news offered a variety of indications that the economic recovery continues, but some readings missed their expected levels. The Philadelphia and New York branches of the Federal Reserve Bank reported higher than anticipated manufacturing for their respective regions and new jobless claims were lower than expected.
Fed Chair’s Senate Testimony Hints at Coming Interest Rate Hike
Federal Reserve Chair Janet Yellen testified that the Fed might have to raise interest rates sooner than expected if the economy continues to outperform the Fed’s projections. Ms. Yellen said that the central bank presently estimates that the first rate increases will take place approximately one year from now.
The Federal Open Market Committee (FOMC) of the Fed has repeatedly stated that members will continue to review data and economic conditions changing monetary policy. Ms. Yellen said in last week’s remarks that this holds true whether economic conditions improve or decline.
In other Fed-related news, the Philadelphia Fed released its manufacturing index for July with higher than expected results. The Philly Fed’s reading for July was 23.90 as compared to expectations of 16.50 and June’s reading of 17.80.
The New York Fed reported a similar trend for July with a reading of 25.60 as compared to an estimated reading of 17.50 and June’s reading of 19.30. This is good news after the Northeast’s economy was slammed by severe weather last winter. Weather conditions stalled area housing and labor markets.
Weekly jobless claims were lower at 303,000 than expectations of 310,000 new jobless claims and the prior week’s reading of 305,000 new jobless claims.
Home Builders Post Positive Confidence Reading for July
The National Association of Home Builders posted its highest builder confidence reading in six months for July with a reading of 53 against the expected reading of 50 and June’s reading of 49. Numbers above 50 indicate that more builders surveyed have a positive outlook than not.
Housing Starts for June were reported lower than expected at an annual level of 893,000 against an expected reading of 1.02 million and May’s reading of 985,000 housing starts.
Mortgage Rates Lower
According to Freddie Mac’s weekly survey, average mortgage rates were slightly lower last week. The average rate for a 30-year fixed rate mortgage fell by two basis points to 4.13 percent. Discount points were 0.60 as compared to the prior week’s reading of 0.70 percent. The average rate for a 15-year fixed rate mortgage was 3.23 percent as compared to the previous reading of 3.24 percent.
Discount points for a 15-year mortgage averaged 0.50 percent against the prior week’s reading of 0.50 percent. The average rate for a 5/1 adjustable rate mortgage dropped by two basis points to 2.87 percent with discount points unchanged at 0.40 percent.
The University of Michigan’s Consumer Sentiment Index for July fell just short of expectations at 81.3. Analysts expected a reading of 83.0, based on June’s reading of 82.50. Analysts said that although labor markets are improving, consumers continue to face rising costs for gasoline and food, which likely explained the dip in confidence for July.
This week’s economic news releases include Existing Home sales from the National Association of REALTORS®, New Home Sales from the Department of Commerce and the FHFA House Price Index. The Chicago Fed is set to release its National Activity Index. Freddie Mac mortgage rates and New Jobless Claims will be released Thursday as usual.
When purchasing a home, there are a number of considerations that need to be taken into account. One of those considerations is the foundation of the home. No matter how perfect or suitable a property looks, taking the time to properly inspect the property for foundation problems can save homeowners thousands of dollars in repairs later on.
While foundation cracks are usually present in older homes, that does not mean that newer and even brand new homes aren’t prone to them. When choosing a property, the following tips can help homebuyers find signs of foundation problems and take the right action if any are found.
One of the easiest ways to check for a damaged foundation is to check the concrete of the home. When the foundation is strong and safe, the concrete is not brittle and breakable. To test this, when trying to poke the foundation with a screwdriver, the foundation should be rock solid. If it isn’t, then there may be a foundation issue.
Posts Should Be Sturdy
If the house has a basement, then the posts that hold up the basement and crawl space should stand firmly in place. The bottom of the post should be unmovable and the post should stand straight and tall. If the posts do not do so, then there is a problem with the foundation.
The next component of the house that should be inspected is the floors. All of the floors within the house must be solid, straight, and not slanted. If the floor is slanted or separates from the wall in any place, then the foundation is unable to support the home properly and there is a serious issue.
The walls are also a way to examine for foundation issues. Take a tour around the outside of the home and inspect for any cracks to the exterior. Each wall on the outside of the home should be smooth, solid, and free of any cracks. However, if there is a crack, this may mean that the foundation has shifted and the home is uneven.
Windows and Doors
Next, inspect every window and door on the property. Each should be attached to the surrounding wall and they must also open and close without any difficulty. If there is a difficulty in opening and closing windows and doors, there may be a foundation problem like shifting or uneven ground that is unable to support the property.
Moist Ground Around the Property
Lastly, another sign that there is a foundation problem is if the ground around the property is moist. A strong foundation will usually be set upon ground that is completely solid. When the ground is moist, the dirt particles are porous and unable to bind together, leading to shifting, cracks, and major damage to the home.
Choosing the right home is not a difficult process and making the right assessments of the property can save thousands of dollars in future repairs. To help with assessments, foundation repairs, and to get the right information about how to deal with a cracked foundation in a potential property, then contacting a trusted and professional real estate agent is the best solution when purchasing a property.