Securing a Stafford Mortgage with Paper Losses
In most situations, in order to obtain a Stafford mortgage, a buyer needs to have a down payment ready and his or her credit in great shape. However, what can you do if you have great credit but your tax returns show paper losses?
In a situation like this, being approved for a Stafford mortgage can prove to be a little more difficult than the usual path. If you find yourself in this situation, your next steps will be determined by exactly what your losses are.
The Self-Employed Tax Return
In most cases, self-employed Stafford workers make an effort to write off every expense that they can from their business. The reason for this is simple: they want to look like they are making the least amount of money possible so they will pay less in taxes.
As long as you are keeping accurate records, this write off strategy will help you come tax time. However, this same strategy can prevent you from getting a Stafford mortgage.
When reviewing your profile, lenders wants to see that you have a steady income. By lowering your income via writing off all of your expenses – and in some cases showing a loss – lenders are going to hesitate when it comes time to loan you money. They need to see that you have income that they can view on paper.
Stafford Rental Income
Showing losses on your tax return because of a Stafford rental you own will make it hard to obtain a mortgage. Think about it: lenders are not going to want to give money to a buyer who is showing they are spending more than they are bringing in on a rental property.
If you are trying to purchase your first Stafford rental, try to find a lender that will use an exception basis. The exception can be used to offset your payments to your mortgage on rental properties.
Next Steps
If you find yourself looking for a Stafford mortgage while showing losses on your tax return, there are a couple of steps you can consider. Your first option is to simply wait an additional year. When calculating income, lenders use a two year average. By waiting a year, you can offset the numbers the lenders are using.
If waiting a year does not work for you, Stafford buyers can also try changing your loan programs. Some mortgage loans are more favorable to different financial situations, such as FHA mortgages. If your current program isn’t working for you, there may be another one that does.
Stafford buyers should also look for lenders who are willing to compromise with them. For example, consider making a larger down payment than is usually required. You want to find ways to illustrate that you are serious about obtaining a mortgage and paying your monthly payments on time.
Keep in mind that reducing your overall debt is always a great way to improve your chance of getting a Stafford mortgage. By boosting your score, you can persuade lenders to approve you for the loan, even if you are carrying paper losses for your business.
Applying for a mortgage can bring with it any number of unusual situations. The best place to start is by choosing the right lender. You will want to do your research in order to find a lender who is experienced with working with these situations. In most cases, they will have good connections and be able to give you advice on how to get yourself in the position to be approved if they can’t do it right now.