As the economy rapidly expands and more professionals opt for self-employment, the traditional path to homeownership continues to have unique obstacles for this growing demographic. Navigating the mortgage landscape can be daunting for the self-employed, who often endure additional scrutiny and documentation requirements compared to their W-2 counterparts. 

In this guide, self-employed home seekers will find the navigation tools they need to navigate the intricacies of home loan application processes. The information within will demystify the steps required to secure a mortgage and offer proactive strategies to increase the chances of mortgage approval.

Understanding the Self-Employed Mortgage Landscape

Self-employed individuals often face more stringent requirements than their salaried counterparts when applying for a mortgage. You might be asked to provide several years of tax returns, business financials, and other documentation to help lenders understand your financial stability and loan repayment ability. The key is to prepare early and thoroughly.

Tips to Help you on Your Path to Pre-approval

1. Lower your income-to-debt ratio. While a high income is excellent, your debt-to-income ratio is more important to lenders. This percentage of your gross monthly income goes towards debts like credit cards, car loans, and your potential mortgage payment. The lower this number, the better your chance of being approved for a loan. To lower your debt-to-income ratio, make extra monthly payments on your existing debts or consider paying off some debts altogether.
2. Keep your personal and business accounts separate. Separate accounts will make it easier for lenders to see a clear picture of your finances. Plus, it’ll help you stay organized come tax time.
3. Document everything. When you’re self-employed, lenders will want to see a two-year history of your business income. Be sure to keep detailed records of your revenue and expenses. These documents could include tax returns, profit and loss statements, and bank statements.
4. Deduct less on your taxes. When you’re self-employed, you can deduct several business expenses from your taxes. But when it comes to qualifying for a mortgage, it’s best to minimize your deductions. Less deductions will result in a higher taxable income, making you look more appealing to lenders.
5. Register and pay yourself on a W-2 form. If you’re incorporated, lenders may require that you document your income with a W-2 form. A W-2 is the same form used to report wages for traditional employees. To get a W-2 form, you must register your business with the IRS and pay yourself a salary.
6. Work with a lender who specializes in loans for self-employed borrowers. You may have to shop around to find a lender who understands the unique challenges of financing a home when you’re self-employed. But it’s worth it to find someone who can help you navigate the process and get the best loan terms possible.

Securing a mortgage as a self-employed individual is a challenge worth pursuing. It represents the attainment of a major life goal and the building of wealth through property ownership. By meticulously preparing your financials, leveraging your unique position, seeking professional guidance, and remaining patient, the goal of homeownership can be entirely within reach. Remember, the right mortgage is not just about rates and terms. It’s about finding a financial institution that understands and values the hard work and innovation that embody the self-employed ethos. With these tips, you are well on your way to turning the key to your front door.

When you are ready to buy a home, we would love to put our experience to work for you and help you navigate the homeownership process. Contact us at 928-830-6976.

For many, the phrase ‘American Dream’ conjures a quintessential image of a white picket fence surrounding a beautiful home, symbolizing the pinnacle of personal accomplishment and financial security. The truth is that owning a home is a profoundly cherished ideal in America. It’s a significant milestone and an emotional investment that often defines one’s sense of stability and roots. 

But how do you turn this iconic imagery into reality? 

This guide dives into the intricate steps of owning a home in America, offering exhaustive resources for understanding the processes and navigating the challenges to turn your homeownership dreams into tangible results.

Where Do I Start?

There is a list of questions to get you started when you decide to buy a home.

• How much space do you need?
• Will this be a short-term starter home or a “forever” home?
• What is your ideal commute?
• How much can you spend?
• Which neighborhood?
• Do you need to evaluate nearby schools?

Understanding Home Affordability

Determining what you can afford is a crucial first step. Various online calculators and financial advisors can help you assess your budget. Homeownership goes beyond the purchase price; you must factor in insurance, maintenance, and taxes.

Establishing a Realistic Budget

Create a budget that considers down payment, closing costs, monthly mortgage payments, and day-to-day expenses. The goal is to strike a balance that doesn’t compromise your financial well-being.

Saving for a Down Payment

Saving for a down payment doesn’t have to be daunting. There are multiple tips to help you:

• Automatic Savings: Business Insider suggests direct depositing a percentage of your paycheck into a savings account set aside for your down payment. They state that “the automatic-savings strategy makes it so you don’t have to remember to save money constantly.”
• Learn where your money goes:  Monitor your current spending to determine where you can trim the fat from your budget.
• Create a Goal: Talk to an agent or lender to determine how much you need to save and work towards that goal.

The Mortgage Application Process

Securing a mortgage is often the most daunting aspect of buying a home. Understanding the intricacies of the financing process is essential to finding the right mortgage for your situation.

Apply for a Mortgage

Navigating the application and approval process is complex. It involves credit checks, employment verification, and a thorough financial assessment. Be prepared to supply documents that prove your ability to repay the loan.

Lenders will examine multiple factors, including your credit history, to determine how much you can borrow. They will look at your history of paying and managing your car loans, student loans, credit cards, and other debts.

Freddie Mac states to determine what you can afford, “you should spend no more than 28% of your monthly gross (pre-tax) income on your mortgage payment, including principal, interest, taxes and insurance.” 

Negotiating Tips

Understand what is negotiable and strategic in your approach. An experienced real estate agent can provide valuable insights and ensure your offer stands out.

Familiarize yourself with the legal aspects of an offer. Understanding contingencies and timelines can save time and prevent headaches.

Owning a home in America is indisputably a core pillar of the American dream. It is a significant investment that goes beyond financial returns, offering a sense of identity and community.  Patience, diligence, and a supportive team are your best companions in this noble endeavor. If you plan to buy a home, I encourage you to seek help. When it comes to buying a home, knowledge is power! I am very familiar with the market and trends in selling and purchasing properties in the Quad Cities area.  Call me at (928) 830-6976!

It is hard to miss all of the Flip/House Makeover shows on television.  Some transformations are incredible, but some seem ‘too good to be true.’  Okay, maybe they are ‘true,’ but are the makeovers good enough to last long-term?

When inventory is tight and newly renovated homes are wooing prospective buyers, you must take a step back and remember that the home you’re hunting for is a long-term investment. While futuristic appliances and gleaming hardwood floors may seduce you into making a quick offer, understand there’s much more to a home than what lies on the surface.

Investors who renovate homes want to maximize their profit as quickly as possible. While many are upstanding, others will cut corners to boost their return. Sometimes, an investor will do a “lipstick flip” on a home renovation. This flip type means fixing up what’s cosmetic and leaving the rest as-is. Paint, flooring, appliances, fixtures –all may get a tune-up. But this doesn’t necessarily consider foundation issues, leaks, plumbing problems, and work performed without permits.

Foundational and mechanical problems are a significant concern, but I want to caution buyers that cosmetic changes must be inspected for quality. A new DIY floor that is installed quickly may present problems. 

Just look at the products’ quality and the renovation details before getting ‘wowed’ by the fresh new paint.

Once buyers close on a home, they’re responsible for the home. This includes issues that may be costly to repair or unsafe for habitation. You must take the necessary steps to protect yourself before signing off. Here are some tips to prevent the headache and heartache of a bad “lipstick flip”:

• Do not waive the inspection. In addition to the usual areas, inspect exposed wiring in the attic and mold. Include a termite inspection.

• Ask for a complete list of all work done with receipts for the work. 

• For all work done, make sure the seller used a licensed contractor.

• Ensure the work on the home passed inspection and is up to code. Request a copy of the certificate of occupancy.

• Ask the seller for a current disclosure statement, as required by law.

If the seller balks at these requests, it may be necessary to pass on the home. If issues arise during the inspection, you may change your mind about the house or negotiate for repairs or closing credits, depending on your agent’s advice.

Don’t worry; not all flipped homes are money pits. Prescott has many beautiful homes to offer. As a trusted real estate advisor, I like to ensure my clients don’t get burned! Let us use our years of experience and help you look for your next home (928) 830-6976.

When you become a homeowner, you are also responsible for paying property taxes. These taxes can take a significant chunk out of your finances, and it’s essential to understand their impact on your mortgage payment. Property tax is a recurring expense and can affect the affordability of your home, especially if you’re purchasing in an area where rates are high. 

When applying for a mortgage, you’ll see one of two acronyms in your paperwork, P&I or PITI, depending on whether you include your taxes in your mortgage payment.

P&I stands for Principal and Interest, and both are parts of your monthly mortgage payment that go toward paying off the loan you borrow. PITI stands for Principal, Interest, Taxes, and Insurance. Taxes and Insurance can be included in your payment, although, sometimes, you can elect to pay those items directly. Either way, they are all important factors to calculate when you want to determine the cost of your new home.

Understanding Property Taxes

Before diving into how property taxes affect your mortgage payments, it’s vital to understand the basics of property tax. Property taxes are a form of tax paid on real estate by landowners. Local governments use property tax to fund their services and operations, such as schools, hospitals, and services like garbage collection. The amount of property tax you pay can vary depending on your property’s assessed value and your area’s tax rate.

Including Property Taxes in Your Mortgage Payments

When you buy a home, you’ll have a mortgage. In most cases, you are required to make an additional monthly payment toward property taxes. The mortgage company holds the taxes in a separate account called an escrow account. When property taxes are due, your lender will use the money held in escrow to make payments on your behalf.

Tax Hikes and Your Monthly Payments

Property tax rates are not fixed and will change over time. Governments and local councils have the power to increase property tax rates, which can significantly impact your mortgage payment. It’s essential to be aware of any expected property tax increases and consider them when budgeting for your mortgage.

Yavapai County Tax

We are fortunate in Yavapai County to have a user-friendly online system to look up the property taxes for individual properties. If you are considering a house and want to look up the amount of past property tax, enter the property address on the Yavapai County Interactive Map.   http://gis.yavapai.us/v4/  Once you have the address displayed, select ‘Taxes’ from the right-hand column and view the taxes for the past five years. The Yavapai GIS System also shows assessed values and the amount of previous sales.

Purchasing a home is a significant investment, and it’s essential to understand all expenses you will incur, including property taxes. Property taxes can significantly impact your mortgage payment, and it’s essential to factor them into your home-buying plans. 

Dena and Dave Plane

(928) 830-6976

In today’s housing market, low inventory dominates many conversations in Prescott and many areas of the country. With less inventory available, this increases the need for preparation for homebuyers when a house becomes available. Without preparation, you may miss out on a great opportunity. To help out, we have summarized five tips from Realtor.com’s article, “How to Find Your Dream Home—Without Losing Your Mind.”

1. Get Pre-Approved for a Mortgage Before You Start Your Search

One way to show you’re serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage. Even if you’re in a market that is not as competitive, understanding your budget will give you the confidence to know whether or not your dream home is within your reach. Being pre-approved will help you avoid the disappointment of falling in love with a home well outside your price range.

HOW TO MAKE A DOWN PAYMENT POSSIBLE

2. Know the Difference Between Your ‘Must-Haves’ and ‘Would-Like-To-Haves’

Do you need a large kitchen island to be happy with your home choice? Would a three-car garage be a convenience or a necessity? Before you search, list all the features of a home you would like. Qualify them as ‘must-haves,’ ‘should-haves,’ or ‘absolute-wish list’ items. Taking time to recognize your priorities at this point in the process will help you stay focused on what’s most important.

3. Research and Choose a Neighborhood Where You Want to Live

Every neighborhood has a unique charm. Before you commit to a home based solely on the house itself, take a test drive of the area. Make sure it meets your needs for included amenities, how far is the commute to work or school, look at the school district, check out the neighborhood noise, and survey the traffic. 

HOMES FOR SALE IN PRESCOTT

4. Pick a House Style You Love and Stick to It

Evaluate your family’s needs and settle on a style of home that will best serve those needs. Just because you’ve narrowed your search to a zip code doesn’t mean you must tour every nearby listing. For example, if you need all your bedrooms on the same level, avoid two-story homes that don’t meet those criteria. If you don’t want to spend time working in a yard, avoid touring homes with large yards and high maintenance. 

5. Document Your Home Visits

Once you start touring homes, the features of each home will begin to blur together. Having a journal or notebook to organize your thoughts and comments for each house would be helpful. Keep your camera handy and make notes to document what you love and don’t love about each property you visit.

Being prepared is your best advantage. Get your ‘must-haves’ and ‘must-nots’ ironed out, check with the mortgage company, and of course, enlist the help of a realtor (like me) to research homes that meet your criteria.  

When you are ready to start searching for a home, call me, and I will put my resources to work.

Dena and Dave Plane

(928) 830-6976