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Three Tips for Buying a Home When You’re Self-Employed

Three Tips for Buying a Home When You’re Self-Employed

These days, so many buyers are looking for homes that include a home office. If one isn’t already set up, you can bet lots of buyers are looking for the ideal space to turn into their own. So, it may come as a bit of a surprise that although many professionals are working at home, it actually can be harder for those at-home employees to secure a home loan. This is especially true for those who are self-employed.

Sure, the home-buying process all starts out the same for everyone. Interested buyers look for loan preapproval, so they can be sure they’re shopping within a reasonable price range. Self-employed or not, you need to fill out an application and provide financial documentation that proves you can afford to pay the mortgage you desire.

This may be where the similarities end for those who are self-employed and those who are traditional W-2 employees. At this point in the loan-preapproval process, self-employed buyers seem to face a bit more scrutiny than those who work for an employer. Why? When you’re self-employed, you simply have a little more to prove. You need to let lenders know that you can maintain your stated salary on a yearly basis.

So, what can you do to improve your chances of loan approval when you’re self-employed? Here are three important tips:

Lower your debt.

When it comes to any mortgage, lenders are want to see a low debt-to-income ratio. This doesn’t change when you are self-employed, but it can be harder to show. When you are self-employed, you are able to write off items like your home office, phone and internet charges, automobile expenses and even some meals and entertainment. While that can be looked at as a perk during tax season, those write-offs can negatively affect your income when it comes time to apply for a mortgage. To combat the way write-offs lower your income’s appearance on paper, you can try to lower your debts as much as possible before applying for a mortgage. This will help you achieve the debt-to-income ratio that lenders are seeking.

Boost your down payment.

The likelihood of being approved for any mortgage only goes up when you are asking to finance less, right? So, although you may feel completely comfortable with a potential mortgage, a lender may feel that your self-employed income doesn’t support it. Instead of worrying about applying for a higher amount that may raise some red flags with lenders, up your down payment! Not only will you be asking to borrow less, but you also will show lenders more savings, which only attests to your responsible financial habits.

Keep detailed records.

This can be the hardest part about buying a home when you’re self-employed. One of the biggest things lenders look for when approving a mortgage is a consistent income. If you’ve been self-employed for years, you can easily show your income based on previous tax returns. But, if you’ve only recently become self-employed, your previous tax returns won’t help so much. Instead, those who are self-employed can show lenders monthly profit and loss statements, bank statements and business invoices to prove their income is consistent.

 

Like any other home buyer, a high credit score can help too. When you know you’re going to be applying for a mortgage, make sure all of this documentation is in order and ready to share. All in all, it may be a bit more difficult for someone who is self-employed to secure a mortgage, but it is not impossible. After all, no one said that being your own boss would be easy! If you’re self-employed and you’re ready to buy a home, let us help.