3 Tips for Getting a Mortgage When You’re Self-Employed
Getting a mortgage when you’re self-employed can be a challenge. Your income stability is viewed as more volatile than someone who works full-time for another business. It’s also harder for lenders to verify your income. As a result self-employed buyers may receive 40% fewer mortgage quotes, according to a new study out from Zillow.com, despite often having higher incomes. An experienced lender can help self-employed applicants successfully find funding – from packaging applications in compelling ways to seeking alternative funders. Here’s a closer look at some key strategies to keep in mind.
Employment history and credit scores are critically important
When lenders can’t look forward to specific income, they’re going to scrutinize your past more intensely. One way that manifests is looking for at least two years of history that you’ve been successfully self-employed. With two years of steady employment history, lenders typically deem that you’re a more stable investment. It’s also key that your credit score is as strong as possible, or you may find yourself denied.
A good credit score indicates that you’ve managed your financial history well, potentially in spite of fluctuations due to the self-employed lifestyle. Taking the time to ensure you’ve got as strong a history as possible – backed up with the appropriate documentation – greatly improves your chances of getting a mortgage.
Cash improves the stability of your overall financial picture
Your overall financial picture matters a lot when you’re self-employed. What’s your current net worth? What do you have available in savings, retirement funds, investments, and other assets? A significant amount of cash at hand improves the perceived stability if your overall financial picture. Often, self-employed individuals can improve their chances of getting a loan with something as simple as one year of mortgage payments in a bank account. The right lender can help you determine what aspects of your financial picture will best demonstrate your ability to afford a home.
Documentation helps lenders overcome reservations
One of the keys to communicating that you’re a less risky investment as a self-employed person is having sufficient documentation on hand. At a minimum, lenders are going to want two to three years of IRS-approved tax returns that show your income level. In some cases, lenders will want to go back even further to look for established patterns. Contracts that show your income going forward can also be helpful in establishing your solvency going forward, as are any 1099s from the year to date. In addition, it will be important to provide statements for bank accounts, retirement holdings, and more as outlined above.
While it’s often more difficult to get approved for a mortgage as a self-employed person, the right lender can help. Contact Sydnee Johnson today to learn more about how she can assist you with getting a mortgage.