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Mortgage for Self-Employed

Mortgage for Self-Employed

It is generally considered to be more difficult for a self-employed person to get a mortgage than a W-2 employee. Some lending institutions may be concerned that you will not earn a steady enough income to make your monthly payments, and others may simply not want to deal with the additional paperwork that can be involved in providing a mortgage. We are here to help self-employed persons and describe all the pitfalls. First of all, your business must have been open for at least two years and have the same structure. If the structure has changed, you need a clear explanation from a third party as to why the structure has changed. The bank will use your tax returns to see what your income is. Do not use a lot of business expenses to reduce taxable income on tax returns, forcing lending institutions to wonder if you make enough money to afford a home. Lenders may want to see a lower loan-to-value ratio, meaning you will need to come up with a larger down payment. Also, do not keep mortgage principal in your business account; this could cause alarm to the bank. Especially if it is a recently earned amount, the bank may have questions about the stability of the business and may require a letter from an accountant stating that there is no negative impact on your business by spending this amount, or you will need to show the bank a reserve of funds in another account. Therefore, it is wise to transfer money from your business account to your personal account well in advance. Here are steps you can take to make yourself a more attractive loan candidate:
  1. Improve your prospects by increasing the credit score, offering a larger down payment, or paying down debt, among others.
  2. Do not use much business expenses to reduce taxable income.
  3. Your mortgage options include Conventional loans, FHA loans, and bank statement loans:
  • Conventional mortgage loan is a conforming mortgage product made without guarantees or collateral from a government entity. Conventional mortgages are made by private lenders and can be sold to two government-owned entities, Fannie Mae or Freddie Mac.
  • FHA loan is a loan secured by the Federal Housing Administration. The Federal Housing Administration does not originate the loan itself; it only insures eligible lending institutions against mortgage defaults.
  • Bank statement loans, also known as alternative document loans, allow borrowers to apply for a loan without submitting the traditional documents that prove income, such as tax returns and W-2s. Instead, lenders look at 1 to 2 years of your bank statements to determine your business income.
  1. It's also possible to take out a joint mortgage or enlist a cosigne:
  • Joint mortgage assumes participation of a co-borrower who is a W-2 employee, such as a significant other, spouse, or trusted friend.
  • Cosign presumes enlisting a co-signer like parent or other relative to your mortgage loan but this person will need to be willing and able to assume full responsibility for the loan if you default.
LBC Mortgage experts have an extensive experience working with self-employed persons and are ready to offer the best conditions for mortgage approval for the purchase of your dream home!

W-2 Income Mortgages

W-2 Income Mortgages

There comes a time in every American's life when you think about mortgage. Each lender has its own requirements for mortgage applications, however, among them the most important is a proof of permanent income and if you can prove your income with 2-year W-2s and at least 2-year tax returns, then you are the most desirable customer for most of the banks, the only thing you need is a W-2 transcript. That means if you are a W-2 salaried borrower with a base and overtime, you only need to perform W-2 transcript processing. The same applies if you are a W-2 salaried employee and your commission and bonus income represents less than 25% of your base. This document helps to prevent any fraud by matching the income shown on the documents you provided with the information shown on the documents during the lender's review of your application for underwriting. These documents are proof of income for a specified period and directly affect a positive mortgage decision. With a W-2 transcript in hand, you can apply for conventional, FHA, and Jumbo loans. Conventional mortgage loan is a conforming mortgage product made without guarantees or collateral from a government entity. Conventional mortgages are made by private lenders and can be sold to two government-owned entities, Fannie Mae or Freddie Mac. FHA loan is a loan secured by the Federal Housing Administration. The Federal Housing Administration does not originate the loan itself; it only insures eligible lending institutions against mortgage defaults. Jumbo loans are mortgages that exceeds a county's maximum bank-approved loan amount. In some areas of the U.S., home prices have risen so high that many buyers have had to apply for very large loans. The interest rate on Jumbo loans is usually slightly higher than in other cases. These loans carry a higher degree of risk for lenders because they are for larger amounts and do not come with insurance. LBC Mortgage company is always here to help you get a W-2 transcript and obtain a mortgage on the best terms for you! Should you unable to provide W-2s we are always ready to tailor a mortgage program to suit your conditions.

Making Sense of Refinancing

Making Sense of Refinancing

If you keep hearing about the “historically low refinancing rates” and are wondering whether or not refinancing your mortgage is right for you, you’re not alone. Refinancing can seem like a complicated topic, but we’re here to help you make sense of it all in a way that’s straightforward and easy to understand.

What is Refinancing?

In short, refinancing is replacing your existing mortgage with a lower-interest loan. With new terms, you can use the money from refinancing to pay off your old loan. There are lots of reasons to consider refinancing, especially if the difference between the interest rate on your old home loan and your new one are considerably different.

Why Should You Refinance?

There are several reasons you’ll want to consider refinancing. By refinancing with a lower interest rate, you’ll save money every month which you can use on other things or save. If you refinance into a loan with a shorter term, your monthly payments will go up but you’ll be able to build equity in your home faster and therefore pay off your mortgage sooner. If you do a cash-out refinance, you can turn the equity you’ve built in your home into cash that you can tap into and spend whenever you want without worrying about tax penalties. There are a lot of options to consider as well as how you want to proceed with the refinancing. Everyone has their reasons and it’s important to understand the pros and cons fully before you decide.

Is Refinancing The Best Option for You?

It’s hard to give a definitive “yes or no” answer to “is refinancing right for me?”. You’ll need to consider your financial goals in the short term as well as the long term. Do you want to lower how much you spend on bills every month? Do you want to shorten your loan term and pay off your mortgage faster? These are both great reasons to consider refinancing. Another point to consider is your credit score. If your credit score is exceptional (800+) or very good (740-700), you have a higher chance of refinancing with better interest rates than someone with porter credit. Keep in mind that once you factor in closing costs, it can take time to break even with your savings. If you’re thinking of selling your home soon or moving, refinancing may not be a good idea, but if you plan to stay and you’re thinking of making improvements, cash-out refinancing can help you put that money back into your home so that should you decide to sell in the future, you can sell it for more. For example, consider how much you could add to the selling price if you add a new roof, a finished basement, or a new kitchen remodel. There are a lot of points to think about, but that doesn’t mean that you have to do it all on your own. Our experienced, knowledgeable and friendly loan officers can help you make sense of the process as well as answer any questions you may have. We’ll take the time to understand the big picture as well as your goals in helping you decide if refinancing is right for you. Contact our top mortgage broker today to learn more about your refinancing options and how to take the next step!

Home Loans for the Self Employed: Are You Ready for Home ownership?

You’ve built your own business from the ground up. It’s one of the many things you consider your pride and joy. You often dream of looking out of your office window, at your yard, and your home. But are you really prepared for home ownership? Many self-employed individuals look at home ownership as a way to avoid putting money in their landlords’ pockets and instead putting it toward building a mortgage and in turn, building equity in their own place But before you take the plunge, it’s important to understand how home loans for the self employed work. Before you choose to buy a home, consider the following:

Your Income Must Be Consistent

Being able to pay your mortgage on time isn’t just a sign of financial stability. It’s the law. A mortgage lender can initiate the foreclosure process in as short as the time frame as a single missed payment or two, so it’s definitely not something you want to make a habit of. Even if you’re thinking about applying for home loans for the self employed, it’s important that you have consistent and reliable income coming in and that you have a way to document this, by way of your bank statements, for example. You want to be able to demonstrate to lenders that your finances are reliable and that you have a constant stream of ongoing income coming in. If you’ve just switched jobs or had a drop in income, it may be worth waiting a bit before you elect to purchase a home, since these can be red flags when you’re trying to get a home loan.

Check Your Credit

Your credit score and credit history all affect your ability to buy a home. Having good credit means you’ll pay less in interest, even if you pursue home loans for the self employed. You may also have a lesser down payment to put down on your home if your credit is better. Average credit doesn’t mean you’re out of luck, but it does mean you may pay more. Ideally, you’ll want to work on your credit to get it as good as it can be before you move forward with buying a home. A few percentage points may not seem like they make much of a difference, but over the course of a 15, 20 or 30 year mortgage, they definitely can add up to thousands of dollars, so do what you can to improve your credit if it’s not as good as it could be.

Can You Properly Care for the Home?

Home ownership means more than just paying your mortgage. You’ll need to do regular maintenance as well, which can include lawn and garden care, repairs, changing out filters, spraying for bugs and more. Unless you have the extra funds to pay a specialist to handle these things for you, they all fall on you. If you’re swamped with work and don’t have time (which can be a great thing), or you just don’t want to deal with the hassle of upkeep, you may be better suited for renting.

Getting Started with Home Loans for the Self Employed

If you’ve read this far and you’re ready to put in the time, money and effort that comes along with home ownership, then congratulations, you’ve taken the first step forward with confidence. The next step is finding out what your options are in terms of home loans. And although there are not specifically home loans for the self employed set aside, you may be able to get a lower interest rate if you’re able to use your self-employed income to make a larger down payment on the home, or if your credit is good and your income stable and regular. All of these things show lenders that you are not only responsible, but a safer bet to lend to than someone with poor credit, flaky income and other red flags. If you’re in a stable position to buy a home and you’re planning on staying where you are for awhile, home ownership could be the right choice for you. With that being said, it’s a big step and not one that you want to take lightly. To learn more about what loans are available for the self-employed and what options you have available to you, give us a call. We’ve worked with thousands of self employed individuals and understand your unique needs in getting financing for your home purchase.

Home Equity Lines of Credit: Putting Your Home to Work for You

As a homeowner, you’ve already put in the hard work to purchase a home. Between the long search, multiple showings, contract agreements, inspections, and finally closing on the property, you’ve earned the right to say that your home is yours. But with homeownership comes the associated task of maintaining your property. Without a landlord, all the maintenance, repairs, and upgrades are your responsibility. That responsibility includes the added cost of paying for contractors and materials. Unfortunately, those costs often come at the least opportune times. Right after you’ve closed on the house, your liquidity has vanished with the required down payment, and large expenses don’t always wait until you’ve had a chance to recoup your emergency fund. The good news is that there’s a solution: a home equity line of credit (HELOC). Getting a HELOC can return you to a position where you can have the funds you need to pay for repairs, debt consolidation of high-interest loans, or even a much-needed vacation.

The Process of Acquiring a Home Equity Line of Credit

You’ll be happy to hear that it’s a lot easier to get a HELOC than buying a house in the first place. There are two major considerations to determine your eligibility and the size of your credit: the loan to value ratio (LTV) and the combined loan to value ratio (CLTV). As the names suggest, these two concepts are closely tied together, so we’ll examine each of them in turn. The LTV is determined by taking the assessed value of your home and comparing it to the outstanding amount on your mortgage. Many firms use 80% as a cutoff point, so if you have a $200,000 house and owe $170,000, you may have difficulty finding a HELOC. If you only owe $100,000, however, your LTV is 50% and you will have a much easier time securing a HELOC. CLTV takes the LTV and compares it to the banks’ HELOC limit. In most cases, this will range from 80-85%, so the difference between that number and your LTV is your CLTV. To use the example from above with a home valued at $200,000 and a remaining mortgage of $100,000, you would likely see a HELOC offer of up to $60,000, bringing you to an 80% CLTV.

What Makes a HELOC Desirable Compared to Other Loan Options?

You likely recall that you were able to acquire home loans in Los Angeles long before you bought a house, whether using a credit card or signing an unsecured personal loan for short-term expenses or debt consolidation. In most cases, a HELOC is a stronger option than what you could acquire without the value of a home to secure it. To put that in direct comparison, your credit cards can range from 16-28% interest, while an unsecured loan may fall in the 9-16% range depending on your credit and obligations. A HELOC, on the other hand, may be in the 3-6% range depending on your credit and CLTV. The math is not always so straightforward when it comes to other secured loans, however. Look carefully when you plan to use a HELOC to purchase a new vehicle, as you may find better rates with an auto loan secured by the purchased vehicle.

Stay Informed: Know the Risks

The reason your HELOC will be low interest is that it is a second lien against your home. You can secure low monthly payments by opting for a term extending five, 10, or even 15 years, but if you ever default, then your home is at risk for foreclosure. Take the time to discuss this with your financial adviser to see if this risk is worth the benefits. Ultimately, deciding to open a HELOC is a decision that you must make for yourself. It can often reduce your interest payments compared to other loans, and the interest you pay on it will itself be tax-deductible, so there are significant financial benefits to choosing a HELOC compared to an unsecured loan. Nevertheless, the risk is real if you default on the loan, so take some time to determine if this is right for you.

In What Case Do I Need To Refinance My Mortgage?

In cases when the rates are lowered, of course! Nevertheless, though, there is a bit more to the process. Seeing how the rates seriously dropped in recent times, it is only natural that you will be thinking about refinancing. Yet, is refinancing the answer to all of your problems? A lot of property owners actually pick the refinancing option to save more money, yet in the end it could lead to entirely unexpected results. Regardless of whether you want to lower your monthly payment or pay off your mortgage even sooner, you need to consider some important factors in order to make an informed decision that will benefit you in the end. So what does refinancing actually stand for? In case you are refinancing your mortgage, it basically implies that you are planning on paying off your existing loan and replacing it with an entirely new one. There are plenty of reasons why property owners may turn to refinancing. Among the most common ones are the following:
  • In order to get a lower interest rate
  • In order to shorten the mortgage term
  • In order to convert from an ARM (adjustable-rate mortgage) to a fixed-rate one or even vice-versa
  • In order to tap into the equity of the property and to finance a big purchase
And who will help you with all that? Well, if you are interested in locating the right individual who can help you refinance, your very best option would be to find a mortgage lender. As their extensive knowledge of mortgage programs is genuinely substantial, they will have the skills and the expertise to help you find the ideal program and will make sure that you are making financially lucrative decisions to begin with. A good mortgage lender will have what it takes to assess the financial situation you are in and will establish whether refinancing will make more sense in your case. They will end your confusion and will provide you with all the information you may require during the process. It will be possible for you to refinance your mortgage for several purposes, which could prove to be advantageous for you:
  • Shorten the term of your loan – you will be able to refinance for a shorter term loan. For instance, you will be able to actually switch from a 20-year one to the 10-year one, if you like.
  • Converting between the adjustable and fixed rate mortgage. You will be able to switch to yet another program – one with a stable rate or an interchangeable one.
  • Tapping into the equity of your property. You will be able to use the equity that you have built into your property to finance yet another big purchase.
If your mortgage balance actually exceeds the overall value of the property, it will be quite challenging to refinance. If your mortgage is “under water”, the refinancing options are going to be pretty limited. Still, there are several options that will help you with that: HARP The Home Affordable Refinance Program (HARP) may help you refinance if you are eligible for it. If you qualify, you will be able to refinance a loan from 105% to as much as 125% of the overall value of the house. However, there is always a catch – you will need to be on your way to foreclosing and if you had any delinquent payments within the last 12 months, you are going to be disqualified. In addition, Freddie Mac or Fannie Mae will need to own the loan. If you are pretty much out of any additional options, this may well be the ideal program for you. HAMP Well, perhaps things are even worse than you initially considered they are. Along with an underwater mortgage, you have also managed to miss payments. Thankfully, there is a way for you to qualify for the HAMP (which is the federal Home Affordable Modification Program) and it will be available to you via your mortgage lender. Once more, the mortgage will need to be owned by Fannie Mae, Freddie Mac or any other party signed up with the U.S. Treasury in order for you to meet the qualification criteria. Despite the fact that it really is not a refinancing program, it may still lower the mortgage payments, but your best bet will be bringing it up with your trusted lender in order to verify if it is a good idea for you to begin with. If you choose to resort to refinancing your mortgage, our experienced Los Angeles mortgage broker company will assist you in every step of the way.

Ways To Avoid Private Mortgage Insurance

mortgage-insuranceThere is a one sure way to avoid paying for private mortgage insurance when buying a house – putting at least 20% down. But what if you can’t? Let’s start form the basics and work our way to answering this question. What is Private Mortgage Insurance (PMI)? PMI is designed to protect lender in case you become unable to make your mortgage payments. It exists because, typically, if the borrower defaults the home is sold at auction, which means it can sell at least 20% less than its true value due to damage or neglect. Thus, PMI offsets the risk of borrower defaulting. PMI is offered by privet insurance companies, hence the name, as oppose to government issued insurance which covers FHA loans. Furthermore, PMI will end once the homeowner’s equity reaches 20% of loan amount. In comparison, the FHA MIP can only be cancelled if the property is refinanced. How much does it cost? PMI, same as any other insurance, is based on your particular risk to the bank. In other words, the lower your down payment, the higher your PMI costs. Typically, annual prices for PMI vary from 0.3% to 1.15% of your loan amount. Your exact rate is calculated depending on your credit score, equity and loan term. When and how can you cancel PMI? In general, you can cancel your PMI once the principal balance of your loan drops to 80% of original appraisal, or current market value. However, a few restrictions may apply depending on your provider, for example, showing history of timely payments or absence of second mortgage. How can you avoid PMI other than making 20% down payment? If you do not have a 20% down payment and not an eligible military borrower, who can apply for VA loan, you can still avoid PMI. Most of the lenders offer Lender-Paid PMI, which is basically same thing except the lender pays it on your behalf. In this case, you will be requested to accept a 0.75% rate increase. However, we strongly encourage you to discuss this option with your lender, because LPMI could not be cancelled like PMI can. There is another option you may consider in order to avoid PMI. The, so called, “piggyback” financing. This option, however, will require a 10% down payment. Simply put, the piggyback financing is when you take two mortgages. The first mortgage is a loan on your home and the second to cover additional 10% for the down payment. Such structure is often referred to as 80/10/10, in which 80% is your home loan, 10% second mortgage and 10% down payment. So, to conclude and answer our original question, yes, there are ways to avoid PMI. However, we recommend not to make this decision on your own but rather consult with your broker. LBC Mortgage 4605 Lankershim Blvd #421 North Hollywood, CA 91602 Phone: (818) 309-2999 Website: https://www.lbcmortgage.com/

Want to refinance your home, but have too much debt? Here’s what you should do

home-refinanceRegardless of whether you are applying for a new mortgage or refinancing you existing Los Angeles home, the lender wants to be sure that you can afford it. In order to determine that the lender will evaluate your debt to income ration, or DTI. A high debt to income ratio could make getting approved for a new loan quite a challenge. However, there is a way to manage the situation and make the numbers work. Remember, lenders value low DTI, not high income. First, let’s clarify what is DTI and how it is calculated. What would be considered as debt in calculating DTI?
  • Housing related expenses, such as:
  • Your future mortgage payment
  • Homeowner’s insurance and property tax
  • HOA dues, if there will be any
  • Minimal payments towards your other debt, such as:
  • Student loans
  • Credit card payments
  • Child support and alimony
  • Auto loans
DTI compares your total monthly debt, consisted of above mentioned, to your income before taxes. Let’s put in the numbers to illustrate. Say, your monthly income is $10,000 before taxes. Your current debt consists of mortgage, property taxes and insurance, which comes to about $2,000. Of course, you have a car, which is, for the sake of example, costs you about $500 a month. Let’s also assume, you have credit card payments or maybe a student loan, which in sum comes up to about $500. Which brings us to total of $3,000 of debt payments. Now, let’s plug it in the formula: DTI = Monthly debt payment/ Gross monthly income = $3,000/$10,000 = 30% Thus, your debt to income ratio is 30%. What if you have a high DTI?                                                                                     The above example shows desirable DTI, however, a higher DTI is acceptable. In fact, lenders might consider a 44% DTI, assuming a perfect credit record and other variables. But what if your DTI is higher than 44%? Luckily, you still have options. Here is what you can do:
  1. Look in to more forgiving loan programs. For instance, Fannie Mae sets a maximum DTI at 35% for those with lower credit scores and smaller down payments and at 44% for those with better credit record and higher down payment. In comparison, FHA loans allow a DTI as high as 50% with a credit score as low as 600. In addition, FHA loans do not require a high down payment.
  2. Restructure your debts. There are a few ways to twig your debt, for instance, you can refinance you student loan. Extending, or spreading out, if you will, your student loan over a longer term will help you bring your payments down which will, in turn, lower your overall monthly liabilities and consequently your DTI. Your credit card debt can be reduced as well through transferring your balance to a new account with a 0% introductory rate.
  3. Pay down, or pay off your accounts.
  4. Cash-out refinance. You can lower or eliminate your debt by taking cash out.
These are just a few ways to get approved with a higher DTI. To learn more, please contact our professional Los Angeles broker at (818) 309-2999 or use online contact form.

15 vs. 30-Year Mortgage

Will 15-year mortgage work for me? This question seems rather popular this days. With the rate drop over the last few month the interest towards the shorter term mortgages has grown in proportion. Of course, there are quite a few advantages to the 15-year term, however, at the same time, there are a few things to consider. Well, let’s take a look at the differences between a 15 and 30-year terms. As we mentioned above, there are a few advantages to the 15- year term. First goes without saying, the 15 year term is just a half of the 30 year term. However, it is important to keep in mind that since the loan is not as “stretched out” your monthly dues will be higher. Yes, having a higher monthly payment might be scary, but let’s look at the bigger picture. The rates for 15 year term go as low as 2.75%, whereas, a 30 year term would rarely go lower than 3.5%. Which means, that less mortgage interest will be accrued each month. In other words, if we combine a shorter term with lower interest we get a homeowner who was able to save hundreds of thousands of dollars. This scenario looks appealing, isn’t it? Well, here’s another advantage of a 15 year term – the 15 year fixed rate mortgage is designed to aggressively pay down your principal. To compare, at today’s rates with 15 year fixed rate mortgage the first payment is 66% principal and 34% interest, whereas, with 30 year fixed mortgage only 35% goes towards your principal. In addition, with the 30 year fixed rate mortgage your payments do not include the same principal to interest ration until your loan reaches 18 years. Let’s get back to original question: will 15-year mortgage work for you? Before we can answer this question, there are a few things to take into consideration. Yes, the 15-year term mortgage can provide a sizable long-term savings in comparison with longer term loans. However, this term does not fit everyone. As mentioned above, your monthly premiums will be higher with the 15 year term, which can be a budget-breaker for some households. The same reason, could make it harder to qualify for such loan because of the debt-to-income ratio required by the lender. So, talk to your broker to determine if 15 year term would be a good move for you.

How To Make a Process of Buying a Property Stress Free: Broker’s Advice. How-To Guide Released By LBC Mortgage Solutions For Home Buyers

We are proud to announce a publication of an exclusive interview with our leading professional Alex Shekhtman. Last week a local Russian news paper "Kurier" has published a new how-to guide dedicated to helping home buyers. This guide will also have information useful to anybody who is interested in refinancing their existing loan. Interested parties are invited to review the how-to guide in full on their website: https://lbcmortgage.com/ This article from LBC Mortgage Solutions contains precise and detailed steps and instructions, designed to be used by people interested in lowering their existing rate by refinancing loan and others who are interested in buying a new house, helping them go through a loan application process, as quickly, easily and with as little stress as possible. Alex Shekhtman states that this accessible, easy to follow guide provides all of the information necessary to fully understand the topic, to get the results they want. The Full How-To Guide Covers: - Trust your broker – trust should not be underestimated - Professionalism and experience are the most important aspects – your broker should be well educated and have solid experience - Professional connections – a broker with well established professional connections will make applying for a loan a lot less stressful When asked for more information about the article, the reasons behind creating a guide on How to make a process of buying a property stress free: broker's advice and what they hope to accomplish with it, Alex Shekhtman, broker at LBC Mortgage Solutions said: “I often hear people referring to an experience of buying or refinancing a house as a night mare. While I'm regrading the fact that these people had such a bad experience, I assure you, it should not be as difficult and frustrating. I hope this interview will help people understand that selecting a good, trustworthy and experienced broker, who values his professional relationships with lenders will make a huge difference in the entire process of buy or refinancing their property. ” More information about LBC Mortgage Solutions itself can be found at https://lbcmortgage.com/about-us/
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