Self-Employed Mortgage Loan:
Millions of people are self-employed today, especially after the pandemic caused such dramatic job loss. Working for yourself has many benefits, including unlimited growth potential which would otherwise be stunted working for someone else.
But buying a house and getting a self employed mortgage loan can get a little tricky. Because you don’t receive a regular income from a third-party, lenders take a much larger risk giving you a mortgage. Most lenders require more extensive paperwork and have tougher restrictions for self-employed borrowers.
Like anything, knowledge is power. Knowing what’s expected of you going into the process is important so you can maximize your approval chances.
Gather your Paperwork
When you work for someone else, lenders accept your most recent paystubs and W-2s from the last two years. That’s all they require.
If you work for yourself, they require a lot more paperwork, including:
- Tax returns from the last two years
- YTD Profit & Loss Statement
- Asset statements (personal) from the last 2 – 12 months
Self Employed Mortgage Loans: The Tax Return Issue
Here’s the biggest issue – your tax returns. As a self-employed taxpayer, you have many more opportunities to write off expenses. This lowers your tax liability, but it also lowers your adjusted gross income, which lenders use to determine if you qualify.
If you have a lot of existing consumer debt or your income on paper isn’t high enough to cover a mortgage payment, it could make loan approval more difficult.
Maximizing your Chance of Approval
Getting a self employed mortgage loan is hard, but not impossible. With these steps, you may increase your chances of approval:
Improve Your Credit Score
A 700+ credit score improves your approval chances, but getting your score as close as possible may help.
Save for a large down payment
The more money you invest in the home, the less risk the lender takes which increases your approval chances.
Pay down debt
Pay off consumer debt to keep your debt-to-income ratio low. Use our debt ratio calculator to learn more.
Work with an accountant
Work with an accountant to determine the best way to pay you (W-2 vs owner draws) to increase your approval chances.
Pro Tip for Self Employed Mortgage Loans:
Take fewer deductions in the year before you apply for a mortgage
This increases your qualifying income and lowers your debt-to-income ratio, increasing your approval chances.
Know your Options
When you take out a loan as a self-employed borrower, you have just as many options as any other borrower.
Look at the available terms and types of loans. Consider an adjustable rate to keep your interest rate down and keep the mortgage affordable for the introductory period. Also, think of your periods of highs and lows, budgeting your payment for the ‘low months’ so the mortgage payment is always affordable even if business is down.
Self Employed Mortgage Loan - I've got you covered
Loan advertisements have you believe only employed borrowers can secure a loan, but there are plenty of opportunities for self-employed borrowers too. I've had years of experience helping self employed borrowers and I can help you too.
The key is to maximize your qualifying factors to make up for the risk that being self-employed creates. Great credit scores, large down payments, and low debt-to-income ratios help your chances of approval while being self-employed.
What will your payments be?
Use my handle mortgage calculator to estimate you new payment.
What are current mortgage rates?
Rates change all the time but currently are at or near historic lows.