This article details various home financing options that are available for people who are self-employed. It includes the pros and cons of financing options like: owner financing, FHA assumable loans, lease/option, NHA lease/options, interest only financing, and traditional mortgages.
Introduction
Owner Financing
Assumable Loans
Lease/Option
National Home Buyers Association
Interest Only Mortgage
Traditional Mortgage
Introduction
Finding a way to purchase a home is difficult for even the most qualified of buyers, however, for people who are self-employed the search for financing is even more treacherous. The main problem is that people who own their own business, especially home businesses, don’t have a steady income each month. Some months are high and some months are low. To lenders, this fluctuation in monthly income heightens the risk that the borrower won’t be able to make their home loan payment on time every month, and that limits many lenders’ willingness to finance homes for people who only have income from a home business or a young business. While it may be difficult for the self-employed to qualify for a traditional mortgage it is not impossible, nor is it the only option.
Owner Financing
One option that the self-employed person can use to purchase a new home is to find a seller that offers owner financing. This type of situation can offer the self-employed person the easiest way to get into a house. The advantages of this financing option is that it often has lower qualifying requirements, less paperwork, and the process from qualifying to getting into the house is much faster. On the other hand, this financing option also has a few drawbacks such as: you are dealing with an individual and not a financial institution, you will probably need to involve a real estate attorney to handle the agreement and title transfer, you will probably have to pay higher interest rates, and the terms of the financing will not be as flexible as a financial institutions’.
To find a property that offers owner financing simply read through the real estate classified section of your local newspaper and look for phrases like "MOTIVATED SELLER," "OWNER FINANCING AVAILABLE," "ALL OFFERS CONSIDERED." These phrases indicate that the seller may be in a position where they need to sell their home quickly and are willing to negotiate the price, terms, and payment options. Even if it is not stated as a possibility, sellers that need money or who are facing bankruptcy or foreclosure may be willing to carry the contract with a large down payment. In any case, it doesn’t hurt to ask. Also your realtor can be an excellent resource when trying to find a property that offers owner financing as they are working to sell properties as much for the sellers, as they are to find a house for buyers.
Even if the terms are not ideal, you can view owner financing as a way to gain equity in a home until you can qualify for a more lucrative mortgage.