Mortgages for the Self-Employed

Published on January 2nd, 2015

Mortgage 101 for Self-Employed Borrowers
While being self-employed makes you the king or queen of your own destiny, the perks such as making your own hours, not having to report to a boss, and more also come with a few downsides. Cue: getting approved for a home loan. Recent reports show that while many self-employed borrowers have a higher budget on what they can spend on a home (compared to those who are simply employed), they also tend to have lower credit scores. This means that even though loan amounts, down payments, and incomes are often a non-issue for self-employed borrowers who are looking for a loan, records show that they receive 40 percent fewer purchase loan quotes compared to non-self-employed borrowers.

While the common loan approval decision factors such as credit score, and more may be working against many self-employed borrowers, there are some ways to combat the consensus and make yourself look more attractive to lenders.

1. Credit is critical: If your credit score is not the greatest, it’s best to start here. Look over your credit history carefully and speak with a qualified mortgage specialist to see what you can do to increase your score.

2. Increase equity: Since this report shows that many self-employed borrowers can offer more money down than non-self-employed borrowers, increasing your down payment is a great way to increase equity in a home and establish more trust between you and lenders.

3. Keep track: Another way to prove that you have an established income as a self-employed borrower is to keep a strong track record of your self-employment. Do you have at least two years of self-employment history? Do you have the pay stubs to back up your net income? Any paperwork you have that can prove how much you make and how steady your business is will help show lenders that you are a qualified borrower.

4. Pay off debt: With many people carrying around student loan and credit card debt, a low debt-to-income ratio speaks volumes to a lender. If you have debt that you can reasonably afford to pay off, it’s best to lower that ratio before trying to get approved for a home loan.

5. Look over tax returns: Before trying to get approved for a home loan, it’s best for self-employed borrowers to make sure their tax returns reflect that they can afford a loan. Many lenders will start with a borrower’s tax returns to see what their monthly income is and base their decision off of this figure. If you’re a self-employed borrower, it’s important that you review these numbers yourself to see what you can afford to pay month-to-month. As more reports reflect that getting approved for a home loan may be a challenge for self-employed borrowers, the best place to start your research is by speaking with a mortgage professional.

An experienced Loan Officer can review your finances with you, show you what loan options are best for your background, and provide the tools you need to start your journey to home loan approval. For more information, or to speak with a Housing Buzz Specialist please contact us today.

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