Blog with MAE Capital

Income Solving Home Loans

October 11th, 2017 11:50 AM by Gregg Mower

The Income Solving home loan has been designed to fill the gap for those folks that can’t qualify when they have to provide their Federal Income Tax Returns.  Current rules for obtaining a Conventional or FHA loan require the applicant to provide tax returns to prove they make enough income to qualify for a home loan.  This traditional style of qualifying for a home loan can leave an entire segment of the population out for qualifying for Conventional, or FHA and even VA home loans.  So, the market place has come up with a type of loan that will comply with the current laws and allow for those that are self-employed or on commission to be able to qualify for a home loan without having to provide Federal Tax Returns.  You may have even heard them advertised as Income Solving Mortgages. 

The current law states that a borrower must be able to show “the ability to repay” the mortgage when applying for an owner-occupied home loan.  This does not hold true for properties that are being purchased as a rental or for business purposes.  So how have lenders come up with ways to avoid providing Federal Tax Returns?  First, you may want to ask why not show the tax returns?  The answer is simple as people that are self-employed or on commission don’t get the luxury of company expense accounts, paid health care, and other expenses.  So those folks may make more than enough money to actually make the payments they just have to write off so many other expenses that a normal salaried person may not need to.   This, in turn, lowers the income shown on their tax returns and, in some cases, may take them out of being able to qualify for a traditional home loan with their tax return. 

The solution to being able to show “the ability to repay the loan” comes in the form of showing the actual income made by the individual.  Showing the income can be best done by showing the deposits made to a business or personal bank account.  For example; a borrower may show $300,000 in deposits for a year and yet their tax returns after expenses only show an income of $25,000.  If we are allowed to look at the deposit record and apply the actual expenses of running their business their income would be far greater and probably enough to qualify for what they wish to purchase.  So, to prove deposits we would require a borrower to bring in one or two years of bank statements to support their “ability to repay the loan”.   We may also ask for a year-to-date profit and loss with the true income and expenses minus any paper write offs like depreciation.

That said, these types of loans will require a minimum of 10-20% down payment and for the borrower to have a good credit score of 680 or better.  So, when evaluating a potential borrower you could see they have good credit and a larger down payment thus lowering the risk of them defaulting on their mortgage.   These loans will also come with a higher interest rate than the traditional Conventional or FHA Loans as the risk is higher of foreclosure according to the market.  This is what is commonly referred to as an Income Solving Loan or an Income Solving Mortgage.  Here at MAE Capital Real Estate and Loan we offer these loans from serval sources.  The reason for having several different sources for these loans is that each lender has slightly different guidelines and each borrower has slightly different circumstances so we can fit our clients to the right lender without the client having to do the shopping themselves.   We also get to go in the back door of the lenders we do business with getting a wholesale interest rate which we pass on to our clients.  For more information and to see if you qualify for this type of loan please contact our office at 916-672-6130 or click here and complete the contact form
Posted by Gregg Mower on October 11th, 2017 11:50 AM

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