Home Buying Tips for the Self-Employed

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Home Buying Tips for the Self-Employed

Posted by HomeHunt on September 10, 2021
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Get the Most Out of Your Investment When Self-Employed

A mortgage approval can be challenging, no matter your financial situation. Self-employed individuals who are looking to buy a home sometimes face a harder time proving that they have steady income, that their debts are low, and their credit is high. People who are self-employed normally do not have the same income each year as the money they take in varies by month. It is important for self-employed home buyers to know how to prepare to qualify for a home given their specific circumstances.

What Do Lenders Want to See From Self-Employed Applicants?

Due to the pandemic, home loan requirements have changed. Self-employed applicants may have some leniency if your income declined due to COVID-19. Lenders will still require documentation of consistent historical income and have certain guidelines for self-employed applicants to follow. Here are common documents to keep handy when applying for a mortgage as a self-employed individual:
  • Two years of federal income tax returns for both personal and business.
  • Recent personal and business bank statements.
  • A year-to-date profit-and-loss statement.
  • Your business license.
  • Letter of verification from a CPA stating that you have been in business for at least two years.
  • Your social security number.
working from home

Tips for the Self-Employed Seeking Mortgage Approval

  1. Choose a Lender You Previously Worked With: A bank that you have a working relationship with may treat your unique case differently than with an new individual. Check in with your current bank often and make sure they know who you are. Your banker may have some intel on how their lenders work and how to improve your chances of qualifying for a mortgage.
  2. Work With a Mortgage Broker: Self-employed mortgage applicants have a unique situation and may need to work with a specialist who understands how to handle your case. Universal banks may not be the best option for you. Instead, hiring a mortgage broker may help you obtain a mortgage faster. Mortgage brokers work independently and are not tied to one bank. So, they can shop your application around to multiple banks to find you the best loan. Look for a broker who is familiar with self-employed individuals and who knows how to help you achieve your goals.
  3. Provide Plenty of Documentation: Documentation is the most important part of obtaining a mortgage. Always keep track of your personal and business documents, bank statements, income taxes, balance sheets, and profits and loss statements. Additionally, letters or signed testimonials from recent paying clients can also help vouch for your income and business.
  4. Clean Up Your Credit: Credit scores are normally highly scrutinized during the mortgage application process. Review your credit report for any mistakes and make sure to dispute any errors. Also, pay off as much debt as possible before applying for your home loan as low credit utilization can boost your score. Excellent credit can make up for other limitations you may face when proving your income.
  5. Pay a Larger Down PaymentConsider saving for a larger down payment to improve your chances of qualifying for a mortgage. Most lenders suggest a 20% down payment, but offering to pay an even higher amount will reduce the amount of money you need for your loan and the lender’s risk.
If you are self-employed, do not stress! Our team at HomeHunt can connect you with realtors and lenders in your area who are skilled in your type of mortgage. Contact us today!

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