We haven’t been hearing much lately about how tight credit is choking off the housing recovery. Once it was announced that the GSEs were going to purchase 97% loans for the first time is five years (which starts today), the tight-credit talk started to subside.
But you still have to qualify for a mortgage, which has always been difficult for self-employed folks who write off their expenses to lower their taxable income. The obvious solution is to lower the write-offs and pay more taxes – but that goes over like a lead balloon with those who are used to creative accounting.
The common belief is that you need two years’ worth of tax returns to qualify.
But did you know that Freddie Mac will accept only one years’ tax return?
That’s right, and I just saw it happen. I just had a self-employed buyer with excellent credit and a 20% down payment close escrow after qualifying by using their 2014 tax return only. The Freddie Mac Loan Prospector (their automated-underwriting service) determines whether you need 1 or 2 tax returns – so as long as the computer approves, you’re in!
For the self-employed who had a strong 2014, you may want to bite the bullet and pay more tax now so you can qualify for a bigger loan. The Freddie Mac maximum loan amount in San Diego is $563,350, which puts your payment around $2,700 per month, plus taxes and insurance.
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