If you are self-employed, you may think that getting a mortgage is out of your reach. However, working for yourself does not mean you won’t be able to own a home!
With the right financial planning, documents, and time you can get the mortgage you need while self-employed.
Work History & Income
It’s important to keep accurate records of your finances and work history. Lenders want to see that you have had a steady income for at least two years, along with the paperwork and records to prove it, especially if you are a 1099 worker.
Lenders require all of this documentation to give them the assurance that you will be able to afford your mortgage payments on time.
Have Good Credit
Having a good credit score is important for everyone, but especially for those who are self-employed. You need to be able to show lenders you can pay your debts on time. The higher your credit score, the more likely you will be approved for a larger mortgage and lower interest rates.
Another big indicator of whether you’ll be approved is your debt-to-income ratio. This is considered the portion of your monthly earnings that go toward paying debt such as student loans.
Keep An Eye On Deductions
Any expenses you write off for your business that may benefit you for taxes, may not particularly work in your favor when applying for a mortgage. Lenders look at your total income after deductions, not your gross income.
This means you may not qualify for a mortgage, or the approval amount will be lower than expected. So, it’s important to keep this in mind when claiming deductions on your taxes.
Get A Co-Applicant
A co-applicant, such as your spouse or a family member, can help you get a mortgage, especially if they have a consistent income via W-2s.
You can ask them to be a co-borrower or co-signer, but their answer may depend on their finances and/or financial responsibility.
Larger Down Payment
If you are able to save enough money, you could put a larger down payment on the home you want to purchase. This may assure lenders that you will be paying for a good portion of the home right from the start.
Also, the higher the down payment, the lower your interest rate and monthly payments. Before doing this, make sure you can financially afford it.