Down Payment for a Mortgage Saving money is one of the hardest things to do…
Featuring Guest Author: Carl Millberg, Loan Officer
Obtaining a Mortgage as a Self-Employed Trucker
As a self-employed individual, you may already face challenges when achieving certain financial milestones, such as buying a car, doing your taxes, or purchasing your first home. The process is not the same regarding what documentation to provide and how to verify your income but know that it is still possible to reach your goal. With that in mind, how can we help you get there?
Say you are at a point in your life where you can finally buy your dream home. If you are a self-employed trucker, what are the steps? The requirements? How do you place yourself in the best position possible to get pre-approved for a mortgage?
Self-employed individuals are essentially in the same boat when going through the process of obtaining a mortgage. For a trucker who is considered an independent contractor, there may be useful strategies that can help advance you to secure a home loan. At RWM Home Loans, we have helped many self-employed individuals like truckers pursue their dream homes. If you are a potential first-time homebuyer, we want to ensure that you are fully equipped and prepared to take on the homebuying journey. Truckers, let’s ride.
Is it Difficult to Get Pre-Approved?
Getting pre-approved for a mortgage is one of the first steps in the process. It is an indication to your mortgage lender that you, as a borrower, are financially able to obtain a home loan. The question is, is it difficult for a self-employed trucker to get pre-approved?
Well, yes and no. More so, it depends on the current state of your finances. It can be difficult for the self-employed trucker to get approved for a suitable mortgage if your income and credit are not where they need to be. Have you gone to buy a home or refinance only to be told you don’t show enough usable income? As a self-employed trucker, you need to write off everything you can to minimize your tax basis. However, are you writing them off correctly? Can you gross up mileage, depreciation, and even your monthly payments on your rigs?
Well, you can find out by reaching out to us and we can make obtaining the right mortgage for you, easy.
Documentation Requirements for Self-Employed
Just with any other standard mortgage application, you will need to provide documentation that verifies your employment history, credit score, and overall financial situation. For truckers and other self-employed individuals, the requirements to apply for a home loan are slightly different since your employment is the business you run. These items include:
- 2 years of tax returns
- All personal and business schedules (if applicable)
- 3 months of recent bank statements from all accounts being used for your funds to close
- Year-to-date Profit and Loss Statement
- Copy of driver’s license
In the midst of COVID-19, lenders also require a letter from self-employed borrowers stating COVID-19 has not affected their business. After submitting these items, more documentation may be needed depending on your tax returns and how your business is currently set up. Remember to communicate with your mortgage lender to confirm what items are required for you so that the process goes smoothly. The mortgage process can be time-sensitive, so be efficient when providing these documents to avoid delays.
How the Self-Employed Can Get Pre-Approved
What are some ways to get pre-approved? As an independent contractor, your finances are established differently than the average worker. You should know what options are out there that align with your current financial situation and get you pre-approved.
The golden ticket in getting pre-approved as a self-employed trucker is that you must have at least two years of being self-employed in your industry. Your usable income, verifiable assets, credit scores, LTV (loan-to-value) ratio, and DTI (debt-to-income) ratio are key factors in obtaining the best mortgage for your unique situation.
Being self-employed may allow you to write off a vast amount of costs to minimize your tax basis. Ask yourself, Am I writing off my costs correctly to minimize my tax basis while maximizing usable income? A trucker can be in a great position if your usable income is maximized correctly. Mileage, depreciation, and payments for rigs financed when grossed up make a significant difference to your usable income.
Another question to ask yourself is, Is my credit mortgage-ready? Here are some great credit tips that may be beneficial in obtaining a mortgage:
- The higher your credit score, the lower your rate, and the more programs become available.
- A slightly challenged credit can usually be mortgage-ready in six weeks or less.
- Keep your open credit card accounts paid down to 30% of what is available.
- Make multiple payments on each credit card every month.
Keep these tips close to the back of your mind because they are effective strategies in raising your credit score significantly. Though, if you are planning to pay off your credit cards, keep them open and do not close them out. Closing can end up hurting your credit rather than helping. If you need additional guidance on repairing your credit, check out our guide on credit repair to overcome your financial obstacle.
Loan Options for the Self-Employed
For truckers and other self-employed individuals, you should know what loan options may favor your situation more than others. Keep in mind that these will not always be the best options, so remember to talk with your mortgage lender so they may be able to decide which loan option aligns with your homeownership goals.
- Full Doc/Conforming Loans: A Full Documentation loan refers to a loan where all income and assets are documented. Going the full doc loan route using tax returns and Profit and Loss statements will get you access to the lowest interest rates and lower down payment options. These programs include FHA, VA, Conventional, and Jumbo Loans.
- Down payment and closing cost assistance: These down payment assistance programs take into account FHA loans and limits only. With full doc loans, no other property ownership is allowed. This is a great way to get into a property with minimal funds out of pocket.
- Bank Statement programs: A bank statement mortgage program allows you to verify your income on a mortgage application using documented bank deposits instead of tax forms, with either 12-month or 24-month bank statements. The earnings deposited justify/verify monthly income. These programs generally require a 10% or more down payment and the interest rates are higher than conforming loans.
Truckers Overcome Financial Roadblocks to Secure a Home
Carl Millberg, guest author and loan officer out of Las Vegas, Nevada has worked with several self-employed truckers who faced difficulties in obtaining a home loan. One success story he experienced was when a self-employed trucker was turned down numerous times with other lenders. They applied with Carl, and after reviewing their income, assets, and credit, a game plan was finally formed.
After discussing with the trucker about their finances, Carl found that their tax returns were far from being done correctly. Per their tax returns, they showed verifiable usable income at $30,000 per year. That income amount was not aligning with the amount needed to purchase their ideal home. Incomes are grossed up by claiming depreciation and business mileage. Neither of these expenses was claimed on their tax returns. On top of that, if a trucker’s rig is financed and paid through their business account, then the monthly payment for the rig can be grossed back into usable income.
Well, this trucker had their rig financed with a monthly payment of $1,200. They always paid this payment out of their business account. However, their tax preparer did not account for this on the trucker’s tax return. They went to their tax preparer and amended the last two years’ tax returns by correctly claiming business mileage, depreciation on their rig, and the rig payment expense. After their amended returns were filed and fully processed by the IRS, their usable verifiable income went from $30,000 to $85,000 yearly, and their tax basis did not change. This process took a month and a half to complete. Eventually, they went out and purchased their dream home and successfully closed in under 30 days.
These home loan stories that Carl diligently dealt with are too numerous to count, even to this day. Despite challenges in a few short weeks, with proper financial analysis and consultation, they became mortgage-ready and bought their dream home.
A Self-Employed Mortgage is Possible
Whether you’re self-employed or not, educate yourself on all the possibilities of obtaining a mortgage and how to set yourself up for homeownership success. For truckers, being able to write off your expenses and minimize your tax basis are just a few of the many advantages of pursuing your dream home.
Of course, you may run into obstacles that defer your dream of purchasing your dream home. But when you do face those obstacles, don’t hesitate to reach out to RWM Home Loans, where Carl and his team can help you figure out your financing and decide what loan option to take that brings your closer to your homeownership goals.
In the meantime, don’t forget to read our guide on credit repair. If you’re a trucker who’s traveled far and wide and have an interest in buying a home in another state, we can help you get prepared for the big move. Any questions regarding your homeownership journey are always welcomed by contacting us directly.
About the Guest Author
Whether you are buying a home or refinancing your current mortgage, you deserve a smooth transaction. Carl is experienced with all types of residential loans. He works with first time home buyers, investors, Veterans, clients needing jumbo loans, as well as looking at the benefits of a refinance for his clients. When applying for a loan, you need a Loan Officer you can rely on. It is important to work with an individual who has your best interests in mind. He is dedicated to helping you achieve your goals. He will make sure you understand all your options and help you pick the best loan to meet your needs. A mortgage is one of the most important financial decisions you will make. He will guide you through this process, every step of the way. Learn more.
Financing details are for educational purposes only. All views and opinions do not constitute financial or legal advice and reflect requirements at the time of publication. Rates, program terms, fees, and conditions referenced are subject to change without notice. Not all products are available in all states for all amounts. All mortgage applications are subject to underwriting guidelines and approval. This is not an offer of credit or a commitment to lend. Residential Wholesale Mortgage, Inc. dba RWM Home Loans is an equal housing lender licensed by the CA Department of Real Estate #01174642 and CA Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act. NMLS# 79445