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self_employeed_male(MCT)—Question: I am self-employed and make a good living. I want to buy a house, but it’s hard to document my income. So I’ve been getting turned down for a mortgage, even though I’m willing to make a large down payment. Any hope for me?  —Trevor

Answer: With banks and the federal government tightening lending requirements, it has become increasingly difficult for people who don’t get regular paychecks to qualify for loans. Although still rare, “stated income” loans are making a comeback. But they require very high credit scores, large down payments and deep cash reserves.

If this is not available, you will have to try to get a loan based on your tax returns. Still, this can be difficult because the self-employed tend to use expenses to offset their net income, resulting in low numbers. That forces them to choose between favorable tax treatment or getting a loan.

If you can’t find a loan from a traditional bank, there are a growing number of private lenders. Some, such as “hard money” lenders, will offer a smaller amount based only on the value of the house, perhaps lending 50 percent of its value. Others also will look at your credit, income and debts and lend larger amounts.

Because these kinds of loans are risky for the lender, be prepared to pay a higher interest rate and higher closing costs. Shopping around is especially important with these loans because the costs and rates vary greatly from one lender to another.

Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar.

©2013 Sun Sentinel (Fort Lauderdale, Fla.)
Distributed by MCT Information Services

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