Modern Day Lending Resource Center

How to Simplify the Mortgage Loan Process When You're Self-Employed When buying a new home, getting as much borrowing power as possible is important. But if you're self-employed or find it difficult to qualify using your tax returns, then you need to find creative ways to build up your financial profile. The mortgage process can be challenging for self-employed individuals, but it doesn't have to stop you in your tracks. In this post, we'll look at how simple this process can be and give you some tips for getting the most out of your mortgage loan when you're self-employed. Let's get started! TLDR Key Takeaways If you don't plan on or don't want to use tax returns to qualify for a loan, you need to ensure you have a steady flow of income into your business or personal account so you can obtain a bank statement loan. When your accountant drafts your CPA letter, make sure it includes your expense ratio to avoid having the standard ratio applied to your income. While your gross income will determine your loan amount, your credit score will influence your interest rate and down payment requirement. Simplifying the Mortgage Process Without Tax Returns In addition to their exhaustive, outdated application processes, traditional lenders use underwriting guidelines that restrict a borrower's "qualifying income." And if you're taking advantage of all your write-offs, this is a big problem! Why? Because traditional lenders typically look at your previous tax returns and use your net income (the number after all your deductions) as your qualifying income. Now, we all know this isn't necessarily an accurate reflection of your gross income. But what if we told you that you don't need your tax returns to qualify for your mortgage loan? You just need your bank statements. At Modern Day Lenders, we take a more common sense approach to looking at your income and evaluating your financial profile. You give us a business or personal account, and we'll look at the cash flow over 12-24 months, focusing on the deposits into the account. Our team knows that your income may fluctuate from month to month, which is why we compare those 12-24 months' worth of deposits to give us a more accurate picture of your monthly income. Once we've established an average, we'll apply an expense ratio (our baseline for most businesses is 50%), giving us a final figure that we use for your income. For example, let's say you gross $10,000 per month, and we apply the 50% expense ratio. You now have $5,000 per month in income that we can use to get you qualified for your mortgage loan. The only other thing that we need to secure your loan is a CPA letter. This letter (prepared by an accountant) confirms that your business is currently active and in good standing. Additionally, if you share ownership, this letter will clarify the percentage you hold within the business. That's it! It doesn't have to be a complicated process. That being said, you can do a few things to ensure your loan amount is the best it can be. Tips for Maximizing the Amount of Your Mortgage Loan Before you even speak to your lender, you can take a few steps to maximize your mortgage loan amount and get the best deal possible. Here are our top three recommendations: 1. Increase Your Deposit Amounts If you aren't planning on using tax returns for your mortgage application, one of the most important things you need to do is make sure you have a steady stream of income flowing into either your business or personal account. As a self-employed individual, it's easy to intertwine your business and personal accounts, but we highly recommend against this. The key here is to choose one as your primary account and make all your sources of income flow through it. Since you won't be using tax returns to prove your gross income, you'll need to show 12-24 months' worth of deposits into your account to qualify for the loan you want. If your money is flowing into both accounts, then it has the potential to lower your average income. 2. Get Your Expense Ratio Into Your CPA Letter You know your expenses better than anyone. If you choose to apply for a loan without evaluating your expenses, then be prepared to have a standard expense ratio applied to your gross income. As previously mentioned, we use a 50% expense rate in our calculations. We play it safe here, and it's likely higher than your ratio. However, asking your account to include your actual expense ratio in your CPA letter is easy. This way, we can use that information to maximize your gross income. Let's go back to that example from above. If your gross income is $10,000 per month, but your expenses ratio is only 20%, then you can use $8,000 of your income to qualify (versus the $5,000 at a 50% ratio). Note: You need to own at least 25% of your business to use the account to qualify for a loan. 3. Build Up Your Credit Score and Evaluate Your Credit History In addition to proving your gross income, your credit score is another important factor that determines your interest rate and down payment requirement. A good credit score (670 and above) indicates to lenders that you're a responsible borrower who will likely repay your loan on time. This translates to better interest rates and a lower down payment. On the other hand, a low credit score (below 670) could result in your loan application being denied or could lead to you being offered a higher interest rate. At Modern Day Lenders, we evaluate your credit and use it to determine the percentage you need to put down. Here's the chart for your reference: Credit Score Minimum Down Payment 700 - 800 10% 680 – 699 15% 660 – 679 20% 620 – 659 25% 600 - 619 30% While many people dread looking at their credit scores, monitoring their financial health and checking for errors is critical. If you find an error on your credit report, then you'll want to have it corrected as soon as possible. Additionally, you can reduce your debt-to-income ratio to improve your credit score. You can monitor your scores and history using various tools or request a free report annually. And that's it—it's that simple! If you follow these tips, then you'll be sure to maximize your mortgage loan amount. Get the Home of Your Dreams With Modern Day Lenders When you're self-employed and looking for a mortgage loan, it's important to find the right lender. There are a lot of different lenders out there, and not all of them are created equal—after all, not every lender will qualify you without tax returns. At Modern Day Lenders, we've helped thousands of self-employed borrowers settle into the home of their dreams after getting a loan they didn't think they could get in the first place. We understand that self-employed individuals like to take advantage of tax write-offs and deductions—and you shouldn't be punished for that! Our team works with you to assess your actual gross income at the time of preapproval, so there are no questions about your income when it comes time to go through underwriting. This is the perfect solution for self-employed individuals who want to take advantage of tax deductions while still operating their businesses. If you've been denied before or are just starting your home-buying journey, let us help you get the loan you deserve. Contact our team today and find out just how easy it is.

How Do You Qualify for a Conventional Mortgage? Millions of people dream of buying a home, but few know how to qualify for a mortgage. This article outlines the basic steps you need to take to be eligible for a conventional home loan. Keep in mind that this is just a general overview and that each individual's situation may differ slightly. So if you have any specific questions, be sure to consult with a qualified mortgage broker or lender. What Is a Conventional Mortgage Loan A conventional mortgage loan is a type of home financing that is not backed by a government agency. Conventional loans are typically available through banks, credit unions, and private lenders. These loans generally have longer terms and lower interest rates than government-backed loans, making them a popular choice for many homebuyers. One of the main benefits of a conventional loan is that they do not require the borrower to have private mortgage insurance (PMI). However, borrowers with less-than-perfect credit may still be required to pay PMI if they are unable to make a large down payment. Another benefit of conventional loans is that they can be used to purchase investment properties and vacation homes. Who Can Qualify for a Conventional Home Loan? In order to qualify for a conventional home loan, borrowers must meet certain requirements set by lenders. Most importantly, borrowers must have a good credit score and a steady income. They must also have enough money saved for a down payment and closing costs. Additionally, borrowers must be able to prove that they can afford the monthly mortgage payments. Lenders typically require borrowers to provide documentation of their income and assets, as well as their debts and expenses. If everything looks good, borrowers should be able to qualify for a conventional home loan. However, it is always important to speak with a lender to get the most accurate information. Conventional Loan Credit Score Requirements If you're planning to apply for a conventional loan, you'll need to meet the credit score requirements set by the lender. Generally, you'll need a credit score of 620 or higher to qualify for a conventional loan. However, some lenders may have higher or lower credit score requirements. For example, some lenders may require a minimum credit score of 640. It's important to check with your lender to see what their specific requirements are. In addition to meeting the credit score requirements, you'll also need to have a good credit history. Lenders will want to see that you've made on-time payments in the past and that you don't have any major blemishes on your credit report. If you can show that you're a responsible borrower, you're more likely to be approved for a loan. Conventional Mortgage Debt-to-income Requirements Anyone applying for a conventional mortgage must meet certain debt-to-income (DTI) requirements. The DTI ratio is a measure of an applicant's monthly debt payments versus their monthly income. For conventional loans, the DTI ratio must be no more than 45%. This means that your total monthly debt payments (including your mortgage payment, property taxes, and any other recurring debts) must not exceed 45% of your monthly income. If you're self-employed or have a variable income, lenders will typically use the average of your incomes over the past two years to calculate your DTI ratio. Conventional Loan Down Payment Requirements When you're ready to buy a home, one of the first things you'll need to do is apply for a mortgage. Conventional loans are a popular choice, and they come with a few different options. One of the most important things to consider is the down payment. The standard down payment for a conventional loan is 20%, but there are some programs that allow for as little as 3%. If you're looking to put less money down, you'll likely need to pay private mortgage insurance (PMI). This insurance protects the lender if you default on your loan, and it can be an added expense each month. Closing Thoughts When you're ready to buy a home, one of the first things you'll need to do is apply for a mortgage. Conventional loans are a popular choice, and they come with a few different options. No matter how much you put down, make sure you're comfortable with your monthly payments and have room in your budget for other expenses like homeowners insurance and repairs. With a little planning and research, you can find the right mortgage for your needs.

You may have heard the term "mortgage lender" but what does that actually mean? Keep reading to find out what mortgage lenders are and what they do. What Is a Mortgage Lender A mortgage lender is a financial institution that provides loans to borrowers to purchase a home. The loan is secured by the home itself, which serves as collateral for the loan. Mortgage lenders typically require a down payment from the borrower in order to approve the loan. Mortgage lenders can be either banks or non-bank financial institutions. Banks are regulated by the government, while non-bank financial institutions are not. Non-bank financial institutions include credit unions, mortgage companies, and savings and loan associations. The role of the mortgage lender is to provide financing for the home purchase and to collect payments from the borrower. The mortgage lender is also responsible for foreclosing on the home if the borrower defaults on the loan. Types Of Mortgage Lenders There are four main types of mortgage lenders in the US: commercial banks, savings and loan associations, credit unions, and mortgage bankers. Each type of lender offers a different range of products and services, so it's important to understand the distinctions before you start shopping for a loan. Commercial banks are the largest category of mortgage lenders. They include national banks like Wells Fargo and Citibank, as well as regional banks and community banks. Savings and loan associations, also known as thrifts, are specialized lenders that focus on home loans, including both savings banks and savings and loan associations. Credit unions are not-for-profit cooperatives owned by their members, typically offering lower rates than for-profit lenders. Mortgage bankers are private companies that originate, sell, and service home loans; they include both large national firms like Quicken Loans and small regional players. When you're looking for a mortgage, it's important to compare offers from multiple lenders to find the best deal. But understanding the basics of how these different types of lenders operate will give you a head start in the process. The Benefits Of Working With A Mortgage Lender There are many benefits to working with a mortgage lender, whether you are buying a new home or refinancing your current home. A mortgage lender can help you save money by finding the best interest rate and loan terms for your situation. They can also help you to avoid common mistakes, such as overpaying for your home or taking on too much debt. In addition, a mortgage lender can provide valuable guidance throughout the home buying process, from shopping for a home to closing on the deal. By working with a mortgage lender, you can be sure that you are getting the best possible deal on your home loan. How To Choose The Right Mortgage Lender For You There are a few factors you should consider when looking for the right mortgage lender for you. First, think about what type of loan you need. There are many different types of mortgages available, so you'll want to make sure you choose a lender that offers the type of loan you're looking for. Second, compare interest rates and fees. Mortgage lenders typically charge different interest rates and fees, so it's important to shop around and compare offers before making a final decision. Finally, consider the level of customer service you're looking for. Some lenders are more responsive than others, so it's worth taking the time to read reviews and talk to friends or family members who have experience with different lenders before making your final decision. By considering these factors, you can be sure to choose the right mortgage lender for your needs. Mortgage lenders are essential in the home buying process and work with buyers and sellers to help them complete a sale. When choosing a mortgage lender, it’s important to consider things like interest rates, fees, and customer service. Do your research and compare several lenders before you decide which one is right for you.