|
  Dear
Dr. Don,
Can you get a home equity line of credit if you are self-employed?
-- Puzzled Pam
 Self-employed individuals often end up using
no-doc or low-doc mortgages when shopping for first or second
mortgages.
Here's how Bankrate's
mortgage glossary defines the two terms:
No-doc loan -- Short
for "no-documentation loan." A mortgage in which the
applicant provides a minimum of information -- name, address,
Social Security number (so credit reports can be pulled) and contact
information for an employer, if there is one. The underwriter
decides on the loan based on the applicant's credit history, the
appraised value of the house and the size of down payment.
Low-doc loan -- A
mortgage that requires less verification of income or assets (or
both) than a conventional loan. These low-documentation loans
are designed for the entrepreneur or self-employed, for recent
immigrants with money in foreign countries or for borrowers who
cannot or choose not to reveal information about their incomes.
You need a substantial down payment, excellent credit history
and will usually pay a higher interest rate.
But these types of loans aren't just for first mortgages,
you can get a low-doc or no-doc home equity loan or home equity
line of credit too. The more information you provide to the lender
the better, because it reduces the lender's uncertainty about the
loan's risk and anything that works toward that end will help lower
the interest rate on the loan. The lender will pull your credit
reports and scores, regardless of which type of mortgage you choose.
Home equity lines of credit, or HELOCs, are priced
at a spread to a base interest rate or index. Many HELOCs are priced
using the prime rate as the base. Your spread to prime is based
on the lender's assessment of your credit risk. More risk, and you
have a wider pricing spread.
You didn't mention how long you've been self
employed, or the variability of your annual income, but if you've
been self-employed for several years and can document your earnings
history, you may be able to qualify for a conventional HELOC, which
should reduce the pricing spread on the loan.
|
