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Don’t Qualify for a QM Mortgage? There are Options

By Brett Mosello March 31, 2015  4:31 p.m. EST

Qualified mortgages (QMs) are a relatively new loan product designed to be safer and more understandable than many mortgages that were written leading up to the housing collapse. The basis of these mortgages is that they are well documented and lenders must assess an individual’s ability to repay the loan over the lifetime rather than just qualify for it up front. They do this by carefully examining a borrower’s assets and debts to make a risk determination. This model works well for traditional workers with steady paychecks. However, self-employed individuals, entrepreneurs and small business owners often don’t qualify because they cannot document the consistent income required by QMs. However, there are many other ways that these individuals can still get affordable financing to purchase a home.

Seek Out Flexible Lenders

Part of the issue is that self employed individuals are allowed to write off more tax deductions, which lowers their income on their tax return. However, that income is what lenders look at when determining how much money they make. While some lenders won’t budge on these numbers, others will. Find a lender who will allow you to add back in items like depreciated assets, which can raise your federal income back up. It may take a few phone calls and research to find a lender who is knowledgeable about how to do this.

Stated Income Loans

While stated income loans aren’t as easy to come by as in previous years, they are still available. With this option, lenders will verify that you have income sources, but not necessarily the amount from each one. Instead, the borrower can state how much income they have. Be prepared to provide the names and contact information for clients, as the lender will contact them. Additionally, you must submit an IRS Form 4506 or 8821, which gives the lender access to your prior tax returns.

Opt for an Unconventional Loan

There is another loan option that is a perfect fit for small business owners and entrepreneurs. It’s called the alternative income verification loan. This loan is similar to no-doc loans but it requires more proof of income and is safer for the borrower. Instead of basing loan qualification on two years of tax returns, lenders base it on 12 months of business and personal bank statements. The borrower must also submit a profit and loss statement to the lender. The lender then analyses this information to determine how much actual cash flow the individual has. While this loan option typically has a percentage rate 1 percent higher than others, it’s a viable solution for non-traditional workers. These loans are currently only offered by niche lenders, so again it will take researching a few companies before you find one who is familiar with them.

Just because you can’t get a QM mortgage does not mean that you can’t purchase a home. The best solution for entrepreneurs and small business owners is to start the process early and plan to put more time and research into finding the right lender. If you need help getting through the process, contact the qualified mortgage brokers at Luxury Mortgage for help.


How to Determine the True Value of Your Home

By Brett Mosello March 17, 2015  3:15 p.m. EST

A home is one of the most expensive purchases that many people will make in their lifetime. Therefore, it’s only natural that homeowners like to keep track of how much it is worth. The value of a home can impact many things including insurance premiums, property taxes, refinancing and eventually the sale of the home. For this reason, it’s a good idea to periodically review your home’s value using online websites and similar homes in your neighborhood. These two resources will provide all the information that you need to find out what your home is really worth in today’s market.

Valuation Websites

One of the first places that many people start is the online valuation websites that provide a home’s value. Many of these sites, such as Zillow.com, Trulia.com and Realtor.com, are free and easy to use. Simply enter your home’s address and the site will return a price range for your home. These websites utilize public records to compile information on a home such as annual property tax payments and all sales and foreclosures of a home. These websites provide a multitude of valuable information that wasn’t easily accessible 10 to 15 years ago. However, the values that they provide for a home must be taken with a grain of salt. This is because they don’t take into account the actual condition of the homes because no one actually visits them. In addition, the public records that these sites use are classified as “trailing data”. This means that the information, while accurate, may no longer be a reasonable selling price for the home. Individual markets change quickly and data that is even 6 months old can give owners a false impression of value.

Pull Your Own Specs

To balance out the values found online, home owners must pull their own comps, which are recently sold homes in their neighborhood. This tells you what buyers are willing to pay for a home that is similar to yours and is exactly what a real estate agent does when they list your home. Luckily, you can utilize the above websites to also look up recently sold homes in your area. Ideally, you will need three homes that are within your neighborhood and that are as identical to yours as possible. They must have the same square footage, number of bedrooms and baths, as well as be the same type of residence. It’s also critical to only use homes that have already sold, not ones that are currently for sale. Finally, try to locate homes that have sold recently. Since buyers fluctuate in what they are willing to pay from year to year, using a home that was sold five years ago won’t give you accurate information.

Determining your home’s value can easily be done in a day as long as you have time to do the detailed research. In addition, being familiar with other homes in your area and their price points will give you valuable information in case you do decide to move and sell your home.