Being self-employed comes with a number of challenges. One of the biggest ones involves having enough information to obtain a mortgage. But being self-employed shouldn’t be a barrier to achieving your dream of homeownership. Instead, just make sure you are properly prepared before you begin, and you may find the entire process is easier than you imagined.
If you want to know what you need to prepare in order to get a mortgage as a self-employed person, start with these tips.
Having sufficient savings is a requirement for any mortgage. However, self-employed individuals need to put extra effort into acquiring the necessary funds, as it may be harder to find lenders that will work outside of standard terms.
The largest savings factor for purchasing a home is a down payment. This represents a specific amount of the purchase price of the home. The purpose of a down payment is to help create equity when the purchase is made. This provides extra security for the lender in the case you are unable to make payments as there is additional value in the home beyond what you owe on the mortgage.
You will also need additional funds set aside to handle certain tasks associated with the purchase. This can include fees associated with acquiring appraisals or home inspections. While these may or may not be mandatory, it is wise to complete them before buying a home. This helps lower the likelihood of unpleasant surprises after the purchase is made, such as unanticipated issues with the structure.
If you want to make sure you leave the best impression with lenders, you also need to have approximately one year of mortgage payments set aside. This provides a buffer should an unexpected change in your self-employment income affect your ability to pay your mortgage based on incoming funds.
You can get a mortgage with no proof of income, in a traditional sense. Employees of companies often have paystubs and can provide reasonable evidence regarding what they will make in the future. Self-employment can fluctuate from month to month, and that fact makes lenders nervous. Even if you don’t have traditional paystubs, you do have documentation that demonstrates your income.
Gather all information that shows how much money comes in from your self-employment activities. This can include invoices, deposits, and records required for tax purposes. While these don’t necessarily provide a definitive answer regarding what you will make the next month, it can show what your normal monthly income looks like. That may be enough for lenders who are open to working with self-employed individuals.
As a self-employed individual, your best bet in finding a suitable lender is to shop around. Research options available through multiple lenders, including financial institutions with whom you have a current or previous relationship. If your primary bank offers mortgages to self-employed persons, you may have an easier time working with them if they also receive deposits from your self-employed income. A preexisting relationship in these cases may improve your chance of approval.
However, there is no requirement to work with a particular bank if another lender offers a better deal. If you can find substantial savings by working with another reputable financial institution, then you may want to consider going there for the long-term savings that may come with the deal.
Have your potential lender review your information, and see if you are approved. If so, you can move forward with your dream of buying a house.