How To Find A Mortgage Loan If You Are Self-Employed
Self-employment is full of freedom and uncertainty. However, many people love being able to control their work, set their own schedule and never bow to a boss. You do not have an annual salary, a certificate of success or a supervisor to deal with unexpected problems. Unfortunately, without a fixed salary, it is also more difficult to obtain a mortgage. It’s not impossible, of course, but we took a little extra effort on your part. Use our tips to find mortgage loans for self-employed borrowers.
The biggest problem you will face is to prove that your income, while not fixed, remains reliable. Lenders should be able to trust that you will make your monthly payments in full and on time. For this, they will ask for the tax returns. Two years of tax refund is pretty standard, so if you have not been able to keep your income stable for 24 months, you may have to wait before continuing with the mortgage process.
However, you can still find a Self Employed Mortgage with an unstable income as long as you are willing to be approved for a mortgage that meets the lowest stable income you have had in the last 2 years. So, if you have changed between $50,000 per year and $100,000 per year, you could certainly qualify for a loan that meets $50,000 and possibly find a mortgage loan that meets an income of approximately $70,000. If you prefer to find a home that better reflects your current income of $100,000/year, you will have to wait until that income stabilizes for approximately 24 months.
Next, you should verify that your business exists. Tax returns usually work for this too, but some lenders will ask for additional proof. You can use a business license, customer statements, copies of income statements 1099 or a statement from your accountant as proof of the existence of the company.
It is also vital that you have a good credit score and a large down payment. Without these, the lenders will be tired of trusting you with a loan. But even with these two assets, do not be surprised if lenders want you to pay interest rates higher than those advertised on your website. The published rates generally only apply to the “main borrowers”, not those who work for their own account.
You may also need to work with the IRS to complete the application process. The form 4506-T of IRS allows lenders to access your tax transcripts. This form should be sent to the lender by the IRS, not by you.
It is also important to keep in mind that the amount of income that lenders use to process your application is the net income you presented to the IRS when you filed your taxes. People who are self-employed usually report their gross income less business expenses because they save money when they pay their taxes, but this can be harmful when it comes to mortgages. If you use that lower amount, you will not be eligible for a higher mortgage than your gross income could have earned. However, some lenders will work with you to approve the loan if you can show that you have a legitimate and constant income and valid business expenses.
Although it is not impossible to find mortgage loans for self-employed borrowers, a little more work is required. As long as your financial health is good, reliable and you are willing to present some additional documents, it will be fine.