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Self-Employed and Buying a Home T By Jayson Stebbins Mortgage Professional Jayson Stebbins is a 23 year veteran of the Mortgage Banking industry and an Accredited Mortgage Professional through the Mortgage Bankers Association. He grew up in Morgan Hill and currently lives in Gilroy. He is the local Branch Manager of Guild Mortgage, a 56 year old Mortgage Banking firm. His office is in Morgan Hill and serves all of Santa Clara, San Benito, and Monterey counties. You can reach Jayson and his Team at 408-782-8800 or at jsteb- bins@guildmortgage.net here are many choices in the world that we face every day that can sometimes create a paradox. Where both options are not great, and one may actually cancel the other out. I am not talking about satellite vs. cable or paper vs. plastic: we are talking about the choice and paradox of the self employed business owner or contractor. The choice of paying high income taxes or qualifying for a mortgage. Let me explain: in the days before the mortgage meltdown, and before the abuses that came about for the Alt-A or sub-prime lending, self employed people actual had a few years of mortgage lender “utopia”. They could manage their tax returns as they saw fit, write off expenses, take depreciation and reduce their gross income down to a manage- able net number. That allowed them to take advantage of the benefits of self employment that come from the write off’s the IRS allowed. Then when it came time to qualify for a mortgage, even though they didn’t show a lot of income on the tax returns, lenders would audit their bank statements, see the cash flow flowing through the business accounts, and be able to qualify the borrower based on the overall picture, the cash flow and their “stated income”. Now those loans became one of the primary programs heavily abused and ultimately were done away with after the meltdown. You can still find them, but they are private in nature or port- folio lenders and expensive. Traditional mortgage lending has taken the stated income loan off the table. So now what do you do if you are self employed? Well now it becomes more strategic. There needs to be conversations with long term planners and tax accountants. If you know you want to buy a home, do you report higher income, pay more taxes for a few years so you can qualify for a home? Do you wait, save money for a much larger down payment so you don’t have to borrow as much? How do you find the balance between reducing your tax rate/ payments and qualifying to buy a home? There is not an easy answer to this problem, thus a label of a paradox. There are a few tools out there to help. The conventional lending world has created a “one year waiver” rule which, for qualified clients, will allow us to qualify self-employed families using just one year of tax returns. This will help if there has been some cyclical up and down in income, or a strategic approach to filing one aggressive income year. Also available are programs that use “asset depletion” or “pledged assets” - these programs are for borrowers who have a large asset based but difficulty proving their income or file with lower income numbers. If you are willing to pledge a portion of assets against a default, or if your asset base is large you can offset some of the qualifying payment with your cash accounts. These programs are designed to help where they can, but will not fit all clients. Being self employed and buying a home can be very difficult, but planning, fore- thought, and a good group of advisors can make it a reality. Jayson Stebbins is a licensed mortgage agent in CA for Guild Mortgage Company NMLS#38463; Licensed by CA Disclosure:Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act. NMLS Company Unique ID 3274; Branch Unique ID 38480. The postings on this editorial don’t necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. This information is not guaranteed to be accurate and shall not be construed as a guarantee of loan approval. All loans are subject to underwriter approval, and are subject to change without notice. Equal Housing Lender. 68 GILROY • MORGAN HILL • SAN MARTIN JANUARY/FEBRUARY 2017 gmhtoday.com