How to Get a Home Loan when you are Self-Employed
If you are self-employed, you already know the upside that comes with making your own decisions and never having to report to a boss. However, when it comes to applying for a home loan, there are disadvantages to making your own income.
The first disadvantage is that self-employed borrowers need to prove their income with tax returns rather than using a ‘stated income’ loan. Secondly, the recession has caused income to decline for many self-employed individuals. So even if your income has stabilized, your loan qualification will be based on the average of two years of tax returns which could show reduced income.
So what is a self-employed borrower to do when it comes to getting a home loan? Here are The Cesi Pagano Teams’ suggestions on how to get a home loan when you’re self-employed.
Speak to an accountant before you apply
Speaking to an accountant before you apply for a home loan is essential. You may have taken many valid tax deductions as a self-employed individual that make your income appear less than it is to a lender. These returns may be amendable to make you a more attractive candidate for a home loan.
Be sure you can prove your business exists
While two years of tax returns are sufficient enough for most lenders, others may want more proof that your business exists. Be sure to have the following just in case:
- Statement from an accountant
- A business license
- An official website
- Client statements
- Copies of 1099 income statements
Apply with a co-applicate
If you can, and it makes sense, apply for your home loan with a co-applicate. Applying with someone else who has a good credit score and sufficient income can give you a better credit score and lower your debt-to-income ratios.
Put more money down
Making a larger down payment can help borrowers qualify for a loan since their loan size will be smaller, thus lowering their debt-to-income ratio. Lenders want to be comfortable and confident that you won’t be drowning in debt and unable to pay them back their money.
Have a healthy savings account
Have as much cash as possible in reserve. This will prove to lenders that you will be able to withstand recessions in your business without missing mortgage payments.