Self-employment can be great! After all, you get to work from home with your pup or hang out at trendy coffee shops as you plug away on your laptop. The flexibility of running your business as a self-employed individual is something that many people want in their work life.
However, as a self-employed person, you’ll find that some things can be a bit difficult, such as taking control of your taxes or even shopping around for a mortgage. Although you may face some hurdles in applying for a mortgage loan, that doesn’t mean it isn’t possible. Consider these tips below that can help you in the process:
Prepare in advance
Whether you are looking into a bank statement mortgage or are shopping around for lenders who work with self-employed people, you’ll want to make sure to go into the process with everything they’ll be looking for. Some documentation you can expect to be asked for pertains to your income, from profit forms, loss forms, and also personal tax returns.
You’ll also want to make sure to have your business license available, if you have one, as well as any company that can speak for your involvement with them. Whether it’s a letter from current clients or a DBA, showcasing the way you get your money is key to being approved for a mortgage as a self-employed person. Keep in mind that as a self-employed person buying a home, it’s paramount that you have more than 2 years of income documentation that you can prove.
Fix up your credit
A factor in your being approved by a mortgage lender has a lot to do with your credit. If you have unhealthy credit right now, consider making moves on improving your credit score before looking into getting a mortgage.
Lenders will be considering your credit score, your ability to quickly pay off debt, and even the credit utilization ratio you have. If it’s low, this is great for your chances at being approved. If your score is high, this is also great for getting approved.
Debt-to-Income ratio matters
How is your debt? If you have a lot of monthly debts and are drowning in them, with most of your income going to your debt, this won’t look good when shopping for a mortgage. The lower the DTI the better, as this shows that you can budget your finances well and can also afford a monthly mortgage payment. If your debt is high, consider working on crushing your debt before you apply for a mortgage.
Start saving today
For self-employed people, it could be easier for you to get approved for mortgage loans if you have a healthy down-payment available for the home you want to buy. However, this means you’ll need to get to work on saving for that down-payment. If you know that you’ll want to buy a home down the road, it could be helpful to start putting down a hefty amount of savings on a monthly basis as soon as possible. The higher the down-payment you can offer, the better your chances will be when you go to buy your dream home.
While it may be a challenge to put everything together to prove your financial stability as a self-employed individual or couple, it’s certainly not impossible.
Whether you decide to work with a professional who can help you prepare or you get organized and take care of the documents and work yourself, getting started on planning for your future mortgage today will get you positioned to be approved when you’re ready to shop around for a mortgage.