It can be more challenging to get a mortgage as a self-employed individual, given the potential lack of paper trail that you wouldn’t find with a company. While it requires more preparation, it is still possible to get a mortgage as a self-employed worker. Here are five tips to help you navigate getting a mortgage while self-employed.
1. Put Up With More Demands
Many loan officers consider those who are self-employed to be high-risk. If you’re planning a house move, the idea of freelance work comes with a certain degree of uncertainty, and dry spells, both of which leave loan officers questioning whether the applicant’s income is consistent enough to afford a mortgage in the first place.
Self-employed individuals can prove their financial capability by meeting additional requirements from their lender. Before you start looking for a mortgage, consider your finances. You’ll want to start tracking your income and organizing your money. By documenting all of your sources of income, you’re able to showcase your legitimacy as a mortgage applicant.
By distinguishing your different sources of income, your lender will be able to get a clear picture of what you can afford, making the process of obtaining bank statement mortgage loans a lot easier.
2. Review Your Credit
The state of your credit will significantly influence whether or not you will receive a mortgage loan and the terms that reflect the loan you receive.
If you’re planning a move out of state, the expenses that go into this might eat away at your credit if you’re not careful. Your FICO score is the most crucial score that lenders will review to justify the amount of risk you bring as a borrower. Remember that your interest rate will be higher if your score is poor.
If you aren’t lucky with banks, consider pursuing your application with online lenders. These lenders tend to be more open to risk as long the applicant is willing to prioritize greater demands to provide financial security for the mortgage loan.
3. Prepare Your Documents
You also want to make sure you have all the required documents to apply for a mortgage as someone self-employed. Without the paperwork needed to show credibility, you won’t get very far in the application process.
Be sure to include tax returns, bank statements, your business license (if applicable), or additional evidence of your employment. You should also include the most recent invoices that showcase your business is up and running. It would be wise to get a tax preparer to compile a profit and loss report to represent your business.
4. Don’t Take On Debt
Before applying for your mortgage, remember not to take on any more debt. If you take on multiple loans, even for credit cards, your lender will view your applications as a greater risk than if you avoid these purchases. The more you can pay back your debt and increase your net worth, the greater your chances of securing a fair mortgage loan.
5. Have Down Payment Ready
Make sure you have the funds ready to put down a down payment on your property. The general rule of thumb is to put 10% down, but the more you can put down, the better if your credit is poor. Since, to lenders, there is a level of risk tied to self-employed work, the more you can show your financial capability, the better.
Purchase A Home You’ll Love
Obtaining a mortgage while self-employed is tricky but not impossible. With enough effort, you can showcase your financial security and get a mortgage loan to purchase a home you’ll love.