How to Get a Mortgage When You're Self-Employed
Tips for qualifying when you are your own boss.
You might have heard that it's much harder to get a mortgage when you're self-employed or own your own business.
While lenders may have different requirements for the self-employed, you don't have to give up on your dream home, or dreams of a competitive rate, just because you don't work in a cubicle from 9 to 5.
Here are a few things you need to consider to land the best possible mortgage when you're self-employed.
You may need to come up with a larger down payment. When lenders are less certain about a borrower's income stability, they may ask for more money down to secure a loan.
Take a look at your taxes. Because many small business owners end up writing off so many business expenses to reduce taxable income, they may be setting themselves up for more of a struggle—after all, the less you make, the less you may qualify for in a loan.
Boost your credit. An attractive credit score is always an incredible asset for any borrower. If possible, give yourself a few months before making an offer on a house to clean up and boost your credit scores. According to the credit specialists at Lennar Mortgage, there are three main ways to do this:
Correct missteps. Late payments, unpaid bills, or any errors need to be addressed, disputed, paid, or forgiven. Your mortgage loan credit specialist can help you strategize the best way to prioritize and handle these.
Maintain a healthy credit balance. Don't open up too many store credit cards, don't carry too large of a balance on your credit cards, and most importantly, don't max out or exceed your credit limits.
Give it time. Not all borrowers can afford to wait to close on their loan, but if you can wait 6 months or more, you'll have time to address issues such as paying down balances as well as creating a track record of positive credit behavior, such as paying above the minimums and paying on time.
Consider a joint mortgage. Applying with a spouse or partner gives your lender assurance that there is an additional paycheck available to meet payment obligations.
Look for alternative loans. An FHA loan, for example, is federally insured to protect the lender in case you default and requires a lower down payment than conventional mortgages.
Work on your debt-to-income ratio. Do your best to pay down credit cards or other debts. Lenders don't like to see too many lines of credit available, such as store credit cards, credit cards, student loans, etc., which might make it easy for a borrower to become overextended. But don't just cut up your credit cards—closing a card with a high credit limit can actually hurt your credit, so be sure to work with a qualified mortgage loan credit specialist.
Being self-employed doesn't have to end your dreams of an easy home-buying process; to find out more about what products are available and how you qualify, check out home loan options, and see how much you can afford, check out our online affordability calculator.