Realty Times October 4, 2007

Work-At-Home Owners Catch Mortgage Malaise
by Broderick Perkins

Working at home reduces drive times and that cuts climate-changing greenhouse gas emissions, but the lifestyle, newly recognized as "green," is becoming the latest victim of mortgage market malaise.

The other kind of "green" needed to keep a roof over a small home-based business is getting harder to find.

Home-based business owners, as self-employed workers, typically qualify for stated-income home loans (SILs) but SILs, so called "no-doc" (for no documentation) home loans, and other mortgages requiring little or less common documentation are in short supply.

Largely due to riskier "no-docs" that failed, lenders with portfolios heavy in the loans are struggling or have shuttered.

That's putting the kibosh on SILs.

What SILs are available come with stiffer underwriting rules and higher prices.

To get the best home loans, home-based business homeowners need to heed these tips:

  • Put all your docs in a row. In addition to two or more years of tax returns, proof-of-licensing, business tax statements and other proof of self-employment, you should also get a professional accountant to sign off on a profit and loss or income statement. The document reveals home much money your business is making or losing over a specific period of time.

    The documents can take time to gather. Begin well before you actually apply for a home loan, refinanced mortgage, equity loan or other financing that stakes your home as collateral

  • Watch those right offs. Home-based businesses are offered a plethora of tax write offs, from office supplies to special child care deductions and health insurance, but the deductions reduce the amount of income against which taxes are calculated. A smaller income makes it tougher to quality for a mortgage.

    Balance the reduced taxes advantage with the need for sufficient income to land a loan.

  • Use a savings strategy. The larger your down payment the better your eligibility requirements for the best, least expensive loan terms. If a lender offers a SIL it likely wants to reduce its risk.

  • Crank up your credit rating. Good credit has never been more crucial. Lenders have upped the credit score and credit report ante. Visit MyFico.com and learn what hurts and helps your credit score and credit standing. Keep tabs on your credit report, but only fromAnnualCreditReport.com. Obtain one free report from each of the three major credit reporting agencies, spacing the reports so you get one report each trimester from a different agency.

    With the complex finances of a home based business -- startup costs, expenses, depreciation, investments -- it can take a lender time to sort through your application.

    Start early, be patient.

    "What most people don’t know is that many lenders are eager to work with self-employed borrowers," says Ryan Blomster a loan officer with Neptune Financial, in Seattle, WA.

    "And because of the unique loans they offer that are designed specifically for entrepreneurs, you might actually wind up going through less hassle during the process than your neighbor, who depends on the good graces of a boss for his livelihood," Blomster said.

    Blomster also advises:

    • Look for lenders that will let you verify your income in ways that don’t require tax returns or pay stubs. Bank statements, for example, can be much better indicators of cash flow.

    • Don't over look no-doc loans. You’ll need perfect credit and the highest possible credit score and down payment for a no-doc, if you can find one.

    • Use a mortgage broker. If you don't have time to shop around for lenders, do what your business acumen tells you to do -- ask an expert.

    "Mortgage brokers still have access to dozens of lenders and mortgage products many people don’t even know exist. They can streamline the process and make it easy to get the home you want, at a price you can afford," Blomster said.

    For more information, see The Mortgage Professor's take on SILs.


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