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Self-Employed and Looking to Refinance: Any News?

[Aug 20, 2009.]


In past years, "Alt-A" and "stated income" mortgage loan programs could be used to help self-employed borrowers qualify for a purchase or refinance mortgage even if the required debt-to-income ratios were not fully met with documented tax returns. These Alt-A and stated income loan programs are no longer available, even to borrowers with great credit and verifiable assets.

The disappearance of these programs has put many self-employed people in a real bind, because self-employed individuals often use deductions on their tax returns to lower their net profit so as to reduce income taxes. Reducing taxes, though, in this case, also means reducing the income portion of that all-important debt-to-income ratio. In short, reducing income can mean killing refi possibilities.

Is there any chance that self-employed refinancing could get any easier anytime soon?

Higher Conforming Loan Limits Offer Hope

A good starting point for exploring self-employed refinance options is to examine the conforming loan limits in the area in which the home is located. Conforming loans are saleable into the secondary markets (read: government-sponsored entities Freddie Mac and Fannie Mae) and therefore conforming loans are less risky for banks to make. Conforming loan limits were raised in certain "high-cost" areas for 2009.

Here is a good list of the new, higher conforming loan limits. For self-employed borrowers who can sneak under the conforming loan limits, there are some banks that will ignore or at least discount a debt-to-income ratio that's higher than the typical cookie-cutter mortgage.

Find a mortgage pro who can work within that system by requesting a refinance quote.

The Future of Self-Employed Refinancing

The new world of mortgage finance is being formed as we speak, with lenders and borrowers alike scrambling to not only figure out what's going on today but to devise a system that will work over the next years.

From the self-employed borrower perspective, what's becoming clear is that it's important to think about mortgage finance needs before it's actually time to refinance.

For instance, tax returns must be prepared with not only tax minimization in mind, but mortgage eligibility in view as well. Also, self-employed people who may need a home loan sometime in the next few years must be wary of taking out too many business-related loans under their own name. SBA loans, for example, are guaranteed by not only the business but the self-employed borrower herself.

These are factors that savvy business owners simply must consider as the new rules of self-employed mortgage refinancing begin to take shape.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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