If you’re self-employed and are looking to buy a new home or refinance an existing home mortgage, you need to be prepared for the mortgage application process. Sole proprietors used to be able to just provide supporting income documents to get a stated-income loan. However, since the housing crisis, mortgage lenders have tightened the qualification requirements for getting a mortgage loan. If you’re self-employed, this can make it harder for you if you’re shopping for a home loan.
Besides having a high credit score and a low debt-to-income ratio, here are a few tips to help you navigate the process and boost your chances of getting a loan.
- Have a self-employment history of at least 2 years. It’s more difficult to obtain a mortgage if you’ve been in business for less than 2 years, since you’ll need to provide 2 years of filed tax returns that show your self-employment income.
- Ensure you have enough income to make monthly mortgage payments (including taxes, insurance and private mortgage insurance, depending on the loan program). While financial professionals may tell you to deduct as many expenses as you can to show less income on your taxes, this practice can hurt you if you’re applying for a mortgage loan. Lenders want to see that you have the income to pay off your mortgage. So you may want to consider taking a tax hit for 2 years.
- Gather documentation to prove you have sufficient income. In addition to 2 years’ worth of tax returns, lenders often require a current year profit-and-loss statement. Also, you’ll need to provide documentation to show that any large deposits into your bank account are part of your regular income. If you have any business debts that show up on your credit report, you need to provide documentation on these as well since they’ll count against the mortgage amount you can borrow.
- Have cash accumulated in your bank account for the down payment and to cover at least 2 months or more of mortgage payments (including principal, interest, taxes and insurance). In fact, it wouldn’t be a bad idea to have at least a year’s worth of mortgage payments saved to show lenders that you can pay your bills during lean times.
- Meet with a lender or mortgage broker who specializes in loans for the self-employed. These experts are more familiar with a variety of loan packages that may meet your needs.
By following these tips if you’re self-employed, you’ll be more likely to qualify for a home loan.
Contact the mortgage specialists at Grandview Lending to discuss your mortgage needs. We will work with you to find a mortgage program that fits your individual situation.
Photo credit: iStockphoto
Do you know how much home you can afford?
Most people don’t... Find out in 10 minutes.
Today's Mortgage Rates
Leave a Reply