For many, the benefits of being self-employed are obvious. You get to make your own schedule and there’s no reporting to a boss. You are the boss. And, possibly the best part, there’s no salary cap. You can make as much as you want depending on your ambition. In fact, self-employed borrowers report that they make 81% more than other potential borrowers and that their incomes are one the rise! Zillow just recently reported that income for self-employed borrowers is up 28% since mid-2012, while other borrowers’ incomes are down an average of 17%! So why then, do those who are self-employed find it so hard to secure a mortgage?
When it comes to getting a mortgage loan, self-employed individuals received 40% fewer loan quotes. There are some reasons for this. Typically, those who work for themselves have lower credit scores. The line between personal and businesses finances is sometimes blurred and the individual can sometimes be put on the hook for any businesses debts. Also, reported income may be a lot less on paper because of tax deductions. “One of the reasons people like to be self-employed is you can minimize what you’re paying the IRS by taking all these deductions,” said Glenn Gordon, a mortgage broker at Prime Lenders in Fort Lauderdale, FL. “They’re all looking to minimize their bottom line income which is great when it comes to tax time but it’s terrible when it comes to mortgage time and buying a home time.”
If you are self-employed and thinking about applying for a mortgage loan, here are some actions you can take to help the process move along.
- Have the past two years of tax returns ready.
- Try to get your credit score as high as possible.
- Be ready for A LOT of paperwork…be ready to provide them with any documentation that’s needed.
- Offer a large down payment.
- Have significant cash reserves. This shows you can still pay is your business goes under.
- Pay off all consumer debt (car loans, credit cards, etc.)
- Have an established track record of stability for your business.