In the not-so-distant past, self-employed workers had access to programs that allowed them to use stated income as the basis for securing a mortgage. People usually did not need to verify income by submitting tax returns if they had a high enough credit score. In some cases, it was sufficient to submit bank statements, deposit records, and other documentation of the individual’s ability to meet mortgage payments.
Today, however, the federal regulations for conventional underwriting have changed. Banks and other conventional lenders generally require two years worth of tax returns, and they use adjusted gross income as the basis for determining ability to pay.
This presents a problem for self-employed workers. It’s to the individual’s benefit to reduce the adjusted gross income as much as possible through deductions and other write-offs. This lowers the individual’s tax liability; however, with the current underwriting guidelines, it also makes it harder to qualify for enough conventional home financing. A self-employed worker’s adjusted gross income often doesn’t accurately reflect his or her actual ability to pay.
That’s where hard-money financing can help out. Hard-money lenders are more interested in the business ventures that the borrower is planning to use the funds for and expected pro-forma future income than the borrowers’ current income, and because we believe you will earn money on the funds a private money lender can give you. In addition, the approval process is typically very fast—sometimes as quick as a 6 to 24 hours and funding time frame of 7-10 business days.
Hard money lenders usually require a 25%-35% down payment, depending on the nature of the transaction. This is manageable for many real estate investors and borrowers, as the realization for the ROI is much higher than what the cost of borrowing is.
Hard-money loans carry higher interest rates and shorter terms than conventional mortgages. However, in today’s mortgage climate, hard-money lenders in Los Angeles present a viable option for local self-employed workers, real estate investors, corporation, LLCs and other entities. For further information about how hard money loans can help you please contact PB Financial Group at 323.935.5555 or visit www.CalHardMoney.com.
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