Self Employed? Need A Mortgage? Be Prepared To Meet High Standards
Posted on: 11 July 2018
If you are a self-employed and are ready to purchase a home, don't assume that you can't get a mortgage. You should still be able to get a mortgage; the process may just look a little different for you than for someone with a traditional job.
#1 Check Your Tax Returns
When you have a traditional job, the mortgage lending service will ask to see anywhere from six months to a year's worth of your pay stubs to establish that you are making a regular income. When you are self-employed, there are other methods outside of pay stubs that you can use to show that you have a regular income. Most mortgage lenders will instead ask to see at least two years' worth of your tax returns to establish that you have a regular income. This is a longer period than asked of from traditional borrowers, so if you are just starting your self-employment journey, you may want to wait until you can show your income over a two-year period of time. Make sure that you did your taxes correctly and that your taxes show you are bringing in an income for at least two years.
#2 Save for a Down Payment
You are going to want to make sure that you have saved for a down payment. For self-employed individuals, most banks are going to want to look and make sure that you have the money to at least support a 20% down payment as well as money for closing costs. Although expectations for down payments have lowered from the traditional 20%, as a self-employed individual, you should still be prepared to meet this expectation.
#3 Check Your Assets
Next, you are going to want to check and make sure that you have some assets in your pocket. When giving a mortgage to someone who is self-employed, many lenders worry about your overall money flow. They want to work with someone who they believe has the resources to pay their mortgage should something happen to their business.
In addition to having the resources for a traditional 20% down payment on a loan, you are going to want to show the bank that you have an additional large emergency fund, ideally with three to six months' worth of expenses saved. Or you can show that you have money saved up in a SEP IRA. Showing that you have assets and cash will make you a more appealing loan applicant.
As a self-employed individual, you can still qualify for a mortgage, you are just going to have to meet higher standards. Be prepared to show your tax returns and income flow for at least two years. Make sure that you have saved up for a 20% down payment as well as closing costs. Be prepared to show assets, in the form of an emergency savings fund, SEP IRA, or physical property, to establish that you have assets to rely on if your business were to experience a slump.
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