The guidelines for obtaining a mortgage these days favor those who get a regular paycheck. Even if you have almost no money for a down payment, the lenders are happy to lend, if you are what they consider “employed”. Doesn’t matter that you may be laid off and not be able to find another job. As long as you are getting that regular pay check when you apply for your loan, the lenders feel a sense of security.
This has hurt the entire California market but even more so those who earn their income in the entertainment industry. Unless you work full time for a studio or a production company – a production company with a long running show that is, it doesn’t matter if taxes are withheld from your check or not. If you work on various assignments and are only paid while you are working, you are considered “self-employed”.
How do the lenders analyze your income if you don’t have a regular paystub to show them?
First, they take your most recent two years of tax returns and analyze your income line-by-line. If you have received income on the first line (Line 7: Wages, salaries, tips, etc) the income from both years will be averaged. As long as both years are similar. If you made less income in the most recent year, they won’t average, they just use the lower year.
Each line will be averaged separately. For those who also receive checks without taxes being withheld (Schedule “C” income-Line 12) there is more to it. Each expense number that is broken out on the Schedule C form will be analyzed.
There is a different criteria for analyzing each line of your return.
If all this seems confusing, it can be. What’s most important for you to know is that if you are thinking of buying a home this spring or even in the next year or two, it’s important to have a mortgage expert discuss your options with you in advance. Too many buyers who earn a substantial living, assume that they can get whatever size mortgage they can easily pay each month. The problem arises when you try to use common sense – that doesn’t work anymore. Guidelines, with a few execptions, aren’t based on logic.
The truth is, California is different. Always has been, always will be. The government has mandated guidelines that work for middle America, but they forget there is a big country out there and a lot of borrowers have been left out in the cold. In many cases, it seems the more able you are to pay your mortgage payment each month, the less likely you are to fit today’s rigid guidelines.
Forewarned is forearmed. If you’re self-employed by the lenders’ definition, your work history – for the past two years anyway, becomes the focal point. Planning ahead can save you a lot a grief.