Anyone gearing up for a mortgage application is going to take some time to prepare their information, gather necessary documents, and comb through their credit reports. However, for those who write their own paychecks, the process can be a little trickier. With a few more hoops to jump through regarding income, credit, and borrowing in general, the lending process can easily deter any self-employed mortgage applicant. So, here’s our guide to qualifying for a mortgage when you’re your own boss.
Although writing off expenses decreases your taxable income, it also decreases your provable income. Lenders don’t care about your gross earnings; they care about the number that you take home, which means you’ll have to prioritize whether you want to save more on taxes now or qualify for a home later. If you want your mortgage application to look its best, you’ll need to show that you have as much net income as possible, even if you’re going to pay a little more in taxes.
When applying for a mortgage, salaried workers must provide W-2’s and their personal tax returns for the past two years to show that they have both adequate and constant income. Self-employed borrowers must provide the same items as well as their business tax returns (all schedules) for the past two years. If they are a sole proprietor, the schedule C in their personal returns would be sufficient.
Lenders don’t deny applications for having too much proof of income, so save any business documents that you feel may be beneficial to your mortgage application.
Credit plays a big part in mortgage qualifications whether you’re self-employed or not. Therefore, it’s essential that you work to lower your debts and improve your score as much as possible before you begin the home buying process. Since your financial history will be under a microscope when applying for a mortgage, you must examine each of your credit reports, avoid closing or opening any new accounts, and continue making timely payments on each of your existing ones.
As a self-employed borrower, you don’t have to put more money down to walk away with the same deal as a salaried applicant. However, most lenders are much more likely to approve loan requests when the applicant is willing to put down more money because it minimizes the likeliness of a mortgage default. Therefore, while you’re planning to purchase a home, consider saving up for a larger down payment to strengthen your application.
Buying a home isn’t a spur of the moment decision, which is why you should start planning now. By teaming up with the professionals at Butler Mortgage, you can prepare for your purchase to be way ahead of the application game. Whether you’re self-employed or in a salaried position, our team of loan experts can guide you to the best decisions for your long-term purchase and financial future. Contact our team for a free consultation by calling 407-931-3800.