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Our new Q&A gives tips to an anxious homebuyer

Because money doesn鈥檛 come with instructions.

Article published: June 05, 2024

This Q&A is based on questions we receive from clients, just like you. Have a question that involves a dollar sign? Share it! Our planners and subject matter experts will help answer them in upcoming issues of Inside Personal Finance. Send us your questions here.

Q:

I鈥檓 self-employed and getting a mortgage close to my retirement has become a challenge. If your year-over-year income decreases by a certain percentage, I鈥檓 told it can be hard to get a loan. I have more than $1.6 million in assets, and I am having to scramble to buy a house because I鈥檓 slowing down my business, and next year my income could be 20% less. What should I do?

A:

Let鈥檚 face it, it can be easier to get a mortgage when you have an earned income than when you don鈥檛. If clients are considering buying a home, we ask them to think about doing it before they retire for this reason.

That said, those who are self-employed may have a harder time getting loans, including mortgages, if their incomes are inconsistent. But that鈥檚 not to say you can鈥檛 get a mortgage merely because you鈥檙e self-employed. You simply need to meet the tests of lenders, which may include income stability. Bear in mind that even if your income is unstable, it doesn鈥檛 mean you can鈥檛 get a mortgage.

Your $1.6 million gives you an advantage. If that money is in investments (not real estate or other illiquid assets such as jewelry, artwork or collectibles), your financial planner should be able to provide the lender with a letter stating that your portfolio is capable of producing 鈥渪鈥 amount of monthly or annual income. Many lenders accept such letters; some want to see two or three months of statements showing that you鈥檝e actually generated such income. You didn鈥檛 mention other income sources, such as Social Security, which could increase your borrowing capacity even more. And you didn鈥檛 mention debts, such as existing car loans, which would decrease the amount you could borrow to buy a home.

We hope you found this information helpful

Remember that any financial guidance must be adapted to your unique circumstances. For full guidance, always contact your financial planner.

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