Getting a Mortgage When You’re Self-Employed
These days, there are many ways to make a living, including working for yourself. No longer is everyone required to work for a company that provides a traditional paycheck every two weeks. Unfortunately, being self-employed can make getting a mortgage more difficult. By seeking advice from a mortgage broker Burlington residents who are self-employed can find out how to get a mortgage even if they don’t have the traditional proof of income.
There Are Mortgage Options for Self-Employed Individuals
If you’re ready to buy a house instead of paying someone else’s mortgage, then you are already aware of the benefits of homeownership. However, when you visit your bank and try to get pre-approved for a mortgage, you may discover that despite your eagerness to own a house, the lender isn’t all that eager to lend you the money. Lenders view people with a steady, verifiable income as less of a risk than those who are self-employed, but this doesn’t mean you can’t get a loan. If you can’t get one from a traditional lender, a private mortgage lender, who can be more flexible in their qualification requirements may be able to help.
Have a Self-Employed Track Record
Lenders look more favorably upon self-employed individuals who have succeeded at being in business for themselves for at least two years. They want to know that you’re not going to go out of business anytime soon, particularly after they’ve lent you the money. The longer you’ve been working for yourself and can show a track record of success, the better your odds are at getting a loan. So, if you’ve only just started working for yourself, you may want to wait a couple of years before applying for a mortgage.
Improve Your Credit Score
As in any lending situation, the higher your credit score is, the better your chances are at getting approved for a loan. This is doubly true for self-employed people, who need to show their trustworthiness in a different way than through verifiable regular income. The credit score becomes magnified in importance when you’re not able to produce pay stubs and tax documents that show a steady income, so take steps to improve your credit score prior to seeking a loan.
Have a Larger Down Payment
The more money you can put down toward the purchase of a house, the lower the amount of money a lender will need to provide you, which lowers the risk they are taking on you. History has shown that the more equity someone has in a house, the less likely they are to walk away from the mortgage. As such, lenders will look more favorably upon self-employed individuals if they can put more than 20% down.
Have Money in Reserves
Having significant emergency funds in savings can negate the need to prove a steady income when you’re self-employed. If the lender can see that you have several month’s worth of mortgage payments available in case your self-employment goes south, they are more likely to take a chance on you with a mortgage. Cash reserves plus a large down payment are irresistible to most lenders, who can then overlook your lack of a regular paycheck. Of course, not all lenders will be this flexible, but they are out there. Take the time to research the various lenders in your area before committing to one to make sure you get the best deal.
Being your own boss is incredibly freeing, especially if you’re successful at what you do. However, self-employment can hinder your ability to get a mortgage loan unless you have other ways to prove that you’re not going to default on the loan. Getting help from a mortgage broker can help you navigate this tricky process.