Who knew? A guide to getting your self-certified mortgage.
A self-certified mortgage has various differences from the traditional mortgage type that many of us are familiar with. Traditional mortgage loans are those that may now be out of reach for many individuals, as these loans are given more on the basis of employment situation. Various groups of people still have a forty-hour work week, fixed paycheck job where they are paid on a weekly or bi-weekly basis and can qualify for a traditional mortgage. However, a growing number of people are relying on self-employment income or who are relying on a job that pays in consideration to commissions or bonuses. These groups of people will not likely be able to participate in traditional mortgage loans. Instead, the people who are not employed through a typical forty hour a week job can look into a self-certified or stated income mortgage.
At some point, you may have seen a self-certified mortgage loan advertised as a no-doc or low-doc loan. Self-certified mortgage loans do not require as much documentation as a traditional mortgage loan. The qualification process that is associated with a traditional mortgage loan is not required for the self-certified mortgage loan. In most cases, the borrower will state what their annual income is expected to be and they will need to take into account they expect in overtime, tips or bonuses as well. At this point in the process, the lender will perform a credit check instead of reviewing pay stubs, which happens in the traditional mortgage loan process. The lender will then review the borrower's credit history and may require that the borrow provide the creditor with proper references that will know their general payment history well.
In comparison to a traditional mortgage loan, the self-certified mortgage loan will normally have a higher interest rate. This higher interest rate is due to the lessened amount of qualifications that are required for the self-certified mortgage loans. If you have a larger sum of money to use as a down payment on a home, you can usually reduce the interest rates somewhat. A self-certified mortgage is not always the first choice for the majority of individuals because of the high interest rates. However, some people will choose the self-certified mortgage because they can qualify for a larger mortgage in this manner than they would if they went with the traditional mortgage loan. Traditional mortgage loans are effected by only a base income. When extra income from tips, bonuses or commissions is added in for some individuals, the mortgage they qualify for is much more substantial than it would be through a traditional mortgage.
If you are one of the individuals who is interested in obtaining a self-certified loan, you want to avoid getting in over your head. It is wise that you be honest when reporting your income, otherwise you may qualify for a loan that is larger than you can handle. Using numbers that are exceeding what your normal income is in your favor is certainly not a good idea. When you report your income, make sure you stay on the conservative end of what you are used to making and never count on anything that has not yet happened.
