If you are newly self-employed as in under a year, there are some offbeat programs in the Non-QM (non-qualified mortgage – the new subprime) space that can help you. Additionally more traditional programs like FHA and Freddie Mac will often look at you if you have at least 12 months under your belt and one year of filed tax returns and profit and loss. You can obtain a home loan on that 1099 income after giving up the cushy W-2 position with benefits.
In the aftermath of the Great Resignation, the US economy has seen a huge rise in self-employed and gig workers. You know, those of us who have dumped the corporate job with all the perks for what was once considered a riskier and less cushy living. Now 36% of American workers are doing the freelance thing. They are fitness instructors, writers, construction workers, truck drivers, barbers, artists, designers, technical consultants and many others. If you are one of these people and you realized that owning a home or moving to a different kind of home might be a smart move for you and your work, it might be a little tough.
Fannie Mae, Freddie Mac and the government backed loans of FHA/VA/USDA like to see that your income for the past two years has been consistently profitable and they are going to average that income. What if you are doing quite well, but it hasn’t been 2 years? While Freddie and FHA make some exceptions, it still can be a challenge, particularly if you just stumbled upon the perfect home and it’s only been 6 months since you gave up the corp. job and are now doing the same thing freelance and killing it. What to do? Enter Non-QM. Is it really another form of the old “subprime” mortgages? Not really. Yes, rates are higher, but you can do a longer term ARM (adjustable rate mortgage) and garner a reasonable rate, often up to loan amounts of $3M. How do they qualify? Most typically they are going to collect bank statements to show income and cash flow. Several months in a row up to a whole year is usually enough to satisfy the income requirements. It’s simple enough and will get you into that home you want pretty easily.
Newly self-employed and mortgage rates and fees are only higher if you take a Non-QM product
If you are able to meet the 12 month requirement and others that go with an FHA or a Freddie Mac loan then you should be able to also get the maximum allowed financing that is offered on these programs which can be as high as 97% or 95% depending on the program. There is no upcharge on traditional government or conventional conforming programs just because you are self-employed or newly self employed. If you opt for a Non-QM product or you are on a higher loan amount program like a Jumbo, it will be subject to investor guidelines, though the charges aren’t different just because of self-employment. These programs do sometimes carry higher fees and rates due to the nature of their funding sources. Overall the fees should not be higher though.
Documentation on self-employed is a little more lengthy on the income part. See this post for a deeper dive on income documentation.
If you have financial stability, even if you are a little outside the traditional W-2 box, there are ways to help you qualify. Congratulations on self-employment, taking the risk and carving out your own life. A mortgage broker can assist you in finding a loan that gives you the best options for your particular situation.
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