Making The Case For A Mortgage When You're Self Employed
Being your own boss can mean hard work, long hours and big rewards. It can also make applying for a mortgage much more intimidating. While traditional employees can provide lenders with W-2s and consistent paychecks, being self-employed complicates the income verification process.
However, by understanding what lenders will be looking for, and taking the time to prepare, qualifying for a mortgage can still go smoothly.
The Proof Is In The Paperwork
As a self-employed mortgage applicant, you should be ready to show your work. Your documentation requirements are likely to be higher than other applicants. The key to your mortgage success is going to hinge on your ability to show stable, consistent income.
Be prepared to offer a minimum of two years of income history. As a business owner, a complete accounting of assets and debt, profit and loss statements and even 1099s from your clients may be required. The longer your history of running a profitable business, the better your chances will be, so make sure you have your paperwork in order.
Running a business means you’re responsible for every dollar spent. That usually leads to taking advantage of every tax benefit available. While reducing your tax burden through qualified deductions might be smart business, it could hurt your mortgage application.
Minimizing your income for the IRS will also limit the amount of the loan a lender could be willing to approve. If you know a mortgage is on the horizon, consider a less aggressive approach to your tax strategy, at least temporarily, to make your application stronger. Filing an amended return may also be worth considering; please consult your tax advisor.
Credit Score, Cash, Confidence
As with any applicant, your credit score will play a huge role in your ability to qualify for a loan. Take the time to review your credit history and clean up any red flags.
Having a substantial nest egg to use as a down payment and solid savings even after closing will also go a long way toward alleviating concerns about your income stability. Keep that in mind and start saving early if you plan to pursue a mortgage while self-employed.
Lastly, don’t let the process scare you. Getting a mortgage may be more complicated and require a little more planning if you’re self-employed, but it’s not impossible. In fact, it may even be easier than running a business.
If you’re ready for a capable partner who can guide you through even the most complicated mortgage processes, speak to an Open Mortgage specialist today.