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How Self-Employed Professionals Can Qualify for a Mortgage

Ken Venick • May 03, 2021

For self-employed professionals, the application itself is the same as any other employed person. The same components are also considered, including credit score, debt, assets, and income. However, in a typical mortgage process, the lender will contact the employer to verify those components, and determine the likelihood that payments will be made. So if the lender doesn’t have an employer to contact (as you are self-employed), what’s the next step? 

 

Below, we’ll discuss what lenders are looking for when it comes to self-employed professionals, what documentation needs to be provided, and how to ensure you’re meeting all requirements. 

 

What do mortgage lenders look for if you’re self-employed? 

 

If you work for yourself, this probably means you’re already staying organized on and top of your income. This will prove beneficial when it comes to the mortgage process , as you’ll have the information readily available. More than anything, lenders want proof of steady income. On top of that, they want to know that this income is sustainable long term. They’ll also want to understand where you work, whether that’s a home office space, co-working environment, or an office. The strength of your business is also important, as it provides credibility and stability.

 

What documentation should I provide a lender to optimize my self-employment status? 

 

The more you can show a history of consistent self-employment for at least two years, the better. That time frame is important because it shows that your business is established, and was financially sustainable thus far. Here are a few things lenders may ask for: 

 

  • Employment verification. Utilize any correspondence you have, including emails or letters from existing clients, licensed certifications, partner companies or vouchers, a business license, insurance documents, and a DBA.
  • Income documentation. Organize any financial documents related to your business such as personal tax returns, profit and loss forms, etc. 

 

What if I’ve been self-employed for under two years? 

 

If you’ve been self-employed for less than two years, don’t worry! You still have a shot at a mortgage. At minimum, your business must be active for 12 consecutive months. If your most two years of employment before that are verified, then you’re good to go. The lender may dig a little deeper into your training and education, but they’re only looking out for your best interest.

 

How can I optimize my mortgage application? 

 

The first step is to calculate your debt-to-income ratio. Having these hard numbers on hand for the lender will show that you’re serious about the application process. You can calculate your debt-to-income ratio by dividing your monthly recurring debt by your monthly income (before taxes). If the ratio is over 50%, it’s probably best to wait on the application. 

 

The second step is to monitor and improve your credit score. At the end of the day, your credit score is what can make or break your mortgage approval. Paying of all (or at least most) of your debts will do wonders for your score. 

 

And lastly, make sure to separate your personal and business expenses if you aren’t already. We can’t stress this one enough, as intertwining the two can get messy real quick. 

 

Self-employed professionals, we hope these actionable tips will empower you to apply for the mortgage you need, and provide some peace of mind that it is possible!

If you live in Maryland and are looking for a mortgage lender to help you through the process, Ken Venick is your guy. With over 30 years in the mortgage business, you’ll be rest assured in knowing you’re in the best hands. Contact us today!

 

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