Self-employed people earn a higher income on average than people who receive a regular paycheck, but they can have a harder time getting approved for a mortgage. They can also find it more difficult to get approved for a loan modification if they fall behind on their mortgage.
Some lawyers might tell you that you can't get a loan modification if you're self-employed. That's just not true. You can. However, it will most likely add more work to a process that already takes a lot of work.
The reason getting and modifying a mortgage is more difficult for self-employed people is that their income varies more than salaried and hourly workers and they don't have the pay stubs or W-2s that make it easy for banks to verify earnings.
Applying For A Loan Modification
Getting a loan modification is hard enough when you have a salary that pays you the exact same amount every two weeks. To apply, you have to submit a thorough application that includes documentation of all of your finances, including your tax returns, bank statements, and pay stubs. After all of this work, their application is often denied.
Self-employed entrepreneurs don't typically have pay stubs. And their business and personal finances are often sloppily intertwined.
Another problem is that self-employed people often write off as many expenses as they can or even do cash business off the books in order to pay the minimal amount of taxes. Making it seem like you don't make very much money is an effective strategy for avoiding taxes, but not for getting a loan modification. You may need to change these habits to qualify for a loan modification.
Verifying Your Income
For your lender to approve you for a loan modification, they need to be convinced that you have enough income to pay your mortgage every month. After all, if you're in default, it means that you failed to do that at some point. So, with the issues they have, how do self-employed homeowners prove that they have enough income to deserve a loan modification?
- Make regular deposits into your personal bank account. You have to take the money earned from your business and deposit it into your personal bank account on a consistent basis. That's what's used as if it was your pay stub.
- File business and personal tax returns. All homeowners applying for a loan modification have to show completed tax returns. If you own a business, the business' taxes must be filed as well. It's mainly the bank deposits and tax returns that a lender will use to verify a homeowner's income.
- Complete a profit and loss statement. This is required of self-employed homeowners trying to get a loan modification. It can be hard to complete.
Our firm has helped many self-employed homeowners get a loan modification. We help them complete profit and loss statements and do everything possible to make the process as easy as possible on them and put the odds of success in their favor.