Home-buying is complicated enough for the average person with a full-time, salaried job. However, a few key differences in securing a mortgage for self-employed home buyers can make it even trickier.
What Makes It Hard for Self-Employed Borrowers
To qualify for a loan, lenders must know how much money you make and how long you’ve been earning that amount. But they’re not necessarily interested in your past earnings; they use it to predict your future earnings and prove that you can afford a mortgage payment.
To an extent, a lender can look at a salaried worker’s income and predict how much the borrower will earn over the next several months. However, self-employed borrowers are in a tricky position. Most self-employed workers do not have any guarantee of future income, even if their past work has been regular thus far.
Therefore, self-employed borrowers must take extra steps to prove that they can afford a mortgage well into the future.
Qualifying for a Mortgage for Self-Employed Home Buyers
Despite your challenges, you can qualify for a mortgage as a self-employed buyer — you just need to know what to expect and prepare accordingly. Follow these steps, and you will be ready to meet with your lender:
Be Ready with the Right Information
It’s best to prepare the information lenders will need before setting an appointment if you want to expedite the process.
- The nature of your business
- Proof of regular income over a period of time
- Evidence that your business will make income in the future
- Proof that your company is financially stable
If you can make a convincing case that your income will continue to be steady, you will dramatically improve your chances of qualifying for a mortgage.
Proof of Income
Where salaried workers merely have to submit a pay stub, self-employed workers must take extra steps. One such option is providing profit or loss statements for your business, but more commonly, self-employed workers provide bank statements that show a steady income. You’ll need these to prove that you can make any required down payment.
Proof of Regular Work
It’s probably not going to be enough to show that you make money; it’s also essential to show evidence of your business. This proves the viability of your work and the likelihood that you will be able to continue working in the same capacity for the foreseeable future.
This can take the form of contracts or letters from your clients, for example. It also helps to present your business insurance, license (if applicable), incorporation documents, or your DBA.
What Are Some Other Requirements?
Most lenders require that your business be active for at least a year before considering your income, and many banks want proof of income for two years (either in your business or employed elsewhere).
Keep in mind that many lenders have more stringent requirements regarding credit ratings and debt-to-income ratios for self-employed borrowers. However, these requirements vary from one banker to another.
Working with You to Purchase the Home You Want
We’re no strangers to the self-employed home-buying process. You deserve every chance at owning a home, and we are eager to help. Request your rates today to get started!