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Refinancing for Self Employed

Self-employed people and refinancing

While in all other ways, America encourages entrepreneurs, borrowing is one area that most self-employed people face difficulties. Be it a conventional loan or a mortgage on the home, bankers have a problem offering money to the self-employed. This is because the self-employed often show less income than their counterparts in corporate jobs and also have more complicated tax forms that prevent them from qualifying for these loans. However, even the most difficult lenders would have to agree that there are some compelling reasons why the self-employed should tap into their home equity. If you are self-employed, keep the following issues in mind while refinancing.

The sea of documentation

A non-salaried worker is at a disadvantage qualifying for a mortgage loan because of the complicated tax returns that need to be filed and also the other documentation required. We have moved from times of “no-doc” or “lo-doc” options for the self-employed to the stricter IRS guidelines that operate today. The self-employed have a much harder time getting a mortgage or any other type of loan these days because of the stricter documentation requirements.

Before applying for a home loan, get a clearer picture from your lender about the documents required. These may include your current profit and loss statement, bank statements, and commonly two years of tax returns. For refinancing, you may also require to provide details about your current lender and the pay-off balance.

Choosing shorter terms and a Fixed-rate mortgage

It is advisable for the self-employed to choose a fixed-rate loan that allows for easier planning. On the other hand, especially in the scenario where interest rates are increasing, an adjustable-rate mortgage can have you scrambling if your mortgage rate adjusts higher. You can also benefit if you pay off the mortgage earlier by choosing a shorter term for your mortgage. This will allow you to invest your spare cash back into your business sooner.

Tax deductions on mortgages

Mortgages offer valuable tax deductions that can be especially beneficial to the self-employed. As compared to company employees, non-salaried workers often have to pay almost double the Medicare and Social Security taxes. Mortgages offer two very important write-offs: property taxes and the mortgage interest. These tax-deductible components can surely help the tax burdened self-employed person.

Mortgage refinancing is not easy, especially so for the self-employed. But if you are an ambitious entrepreneur, you will discover that the hurdles of refinancing are well worth the effort in terms of the financial benefits to you and your business.

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