While being your own boss has its rewards, it may not be the case when applying
for a mortgage. If you’re self-employed and don’t receive a regular paycheck, lenders may consider you as high risk. The good news is you can still get a loan despite your employment situation, but it will need more planning and preparation.
Tax Return and Income
When applying for a loan, you’ll need to provide a tax return worth of two years. This may not reflect your true income, however, which is the reason many self-employed individuals find it difficult to qualify for a mortgage even when earning a good amount. When underwriters use returns as proof of income, they see deducted tax expenses or lower figure than what you actually take home.
Fix Your Finances
If you’re self-employed yet considering a home loan, American Loans and other mortgage companies in Salt Lake City suggest preparing longer than typical buyers. It’s best to fix your finances and make sure that business money will not mix with personal funds. You can also provider lender references or a list of people who can assure your financial stability.
Good Credit Rating
A strong credit rating is also an important factor mortgage application, but much more when you’re self-employed. A good score will show that you know how to manage your finances well, making you an attractive loan candidate. If your score is less than ideal, you may want to fix it first before the application.
Larger Down Payment
A bigger down payment can help win the approval of many lenders. The ideal number is 20% of the purchase price, but you can pay more if you can afford to do so. This is also avoids private mortgage insurance (PMI), which means more savings. You can also benefit from searching homes that do not carry additional payment for maintenance.
Talk to a lender to learn more about your options, as well as the preparations needs. It may be not impossible to score a mortgage, but you need to understand the requirements and process to avoid problems.