Jumbo Loans for Self-Employed Buyers

Filed under: Borrower Tips

I’ve talked about this topic before, but haven’t brought it up in a while. It’s come up again a few times recently, so I wanted discuss the options for self-employed home buyers.

How Tax Strategy Impacts Loan Approval

We help self-employed clients often. Part of the problem that we run into on the mortgage side is that these guys often have really aggressive tax plans. They have a healthy business, but they are aggressive on their taxes, which makes it hard to get approved for a full-doc loan.

This is where some of the alt-doc programs come into play, such as bank statements and other programs to accommodate these unique situations.

Example of Self-Employed Loan Options

I was talking with Walter Neil, our owner, who gave me a completely different perspective on this topic. I updated some numbers this morning:

What is it going to look like if we do a bank statement program for someone who is self-employed? I looked at a scenario for a million-dollar purchase with roughly 30% down and someone with really good credit. I compared what the person would get in terms of a rate for full-doc vs. a bank statement program. The rate would be somewhere in the range of about 1.25% higher, which is roughly $500 more per month.

I also tried to back into numbers on what that would cost in taxes to qualify for that mortgage. Minimally, you need to make about $150,000 to qualify for this size of mortgage, assuming that you have pretty low debt outside of the mortgage. A rough estimate based on state and federal taxes means that you would need to pay about $75,000 in taxes over a period of two years to make that work.

So, $75,000 today vs. taking a $500 per month higher payment. Run the numbers: it would take you about 12 years of higher mortgage payments to cross the threshold of paying the higher taxes.

Personal Recommendations

These programs are designed to allow self-employed buyers to stick with their aggressive tax plans and still qualify to purchase a home. These programs don’t require 30% down – most of the time it is set at 10% down.

If you are self-employed, know that there are other opportunities if a full-doc loan doesn’t work for you. Talk to me if you are interested in more information about your options.

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