Self Employment Home Loans: A Win-Win for Business Owners
If you are self-employed, a self employment home loan might be a good option for you to purchase an investment property. Contact a mortgage broker to learn more about your options and loans today!
If you are self-employed, you know the benefits of having your money work for you. One relatively easy and painless way to invest is with real estate. Although there have been ups and downs, experts agree that real estate investing has been overall stable and a way to increase your assets. Real estate has consistently appreciated in value over time and since it is a physical investment, you always have something to fall back on, even if the value goes down.
Although real estate investing may have many perks, it can also present unique challenges if you are self-employed. Since you own your own business, you can take advantage of many tax write offs that will save you big on your taxes. Everything from your office space to your paper clips are tax deductible. These deductions can make it look like your business is not making as much money as it actually is, and in some cases it may even look like you lost money.
While normally having a negative income stream is not a problem (as long as it is temporary, if it goes on too long, the IRS may object), it can present challenges when you are looking to make a real estate investment. This is especially true if you already own a property that you use as a primary residence. The bank may take one look at your tax returns and debt to income ratio and send you to the door, empty handed.
Being rejected for a loan can sting, but do not be discouraged. Instead, say good bye to the bank and hello to a licensed mortgage broker or private mortgage lender. Brokers and private lenders have access to different self employment home loans than banks do and can often work with you around mortgage requirements to find a loan to fit your needs. There are many options, especially if you are looking for a short term investment property like a fix and flip or short term rental.
Once you have found a mortgage broker or private lender, you will be given many different self employment home loan options. Like anything else in life, it is important to remember that all loans are not created equal, and the best loan for you will depend on your ultimate investment goals. A few loans to look into are:
Hard money loans. A hard money loan is a great self employment home loan
if you are looking for a short term investment. A hard money loan is not backed by a bank but instead by an equity firm or group of investors. They evaluate the property you are purchasing based on its investment potential. This makes your income or other debts less important because their investment is protected by the physical collateral of the property in question. Once they decide a property is a sound investment, they give you the money and you pay interest on it. The interest rate is usually pretty high so a hard money loan is best used as a short term loan to fix up a property and sell for a profit quickly. Once you sell the property, you repay the investors and any additional income is yours.
Adjustable Rate Mortgages. An adjustable rate mortgage is a good option for a longer term investment. An adjustable rate mortgage or ARM has an initial fixed interest rate that is usually very low. The low interest rate means lower payments so it is easier to qualify for, even if you have other mortgage debt or a low income due to business deductions. After a period of 1 to 7 years, the rate resets to a higher rate and your payment goes up. An ARM is a good option if you are going to rent out a property for a few years or do a long term fix and flip. An ARM can also be a good option if you anticipate your income increasing and will be able to refinance before the rate resets.
Stated income mortgages. A stated income mortgage does not use W2’s and tax documents to verify your income but rather goes by what you state it is. This can be a good option if your taxable income and actual income are vastly different. Just keep in mind that you may pay a higher interest rate and it is important to not over-extend yourself.
With a variety of self employment home loan options, don’t let a bank keep you out of the property investment market. Call a mortgage broker and get started today!
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