Homeownership Options for the Self-Employed
Building your career has become more and more about establishing life balance. Similarly, we are moving rapidly towards a “gig” economy. What this means is that more and more people are self-employed or freelancing. While these work arrangements maximize freedom and lifestyle, they do present certain challenges when trying to do certain things, like qualify for a home loan.
If you are self-employed, is it possible to qualify for a home loan? Absolutely!
Employed vs. Self-Employed Home Loan Application
While the process of getting a home loan is pretty similar, no matter what you do for a living, there are some key differences. A hopeful house hunter establishes a budget based on their income and seeks a rate guarantee. Similarly, all house hunters need to fill out a home loan application. Generally speaking, you still have the same down payment requirements and good credit history.
However, the application process for someone who is self-employed is a little more stringent.
Proof of Income
Proof of income when applying for a home loan is very important because it helps to establish your debt-to-income ratio. This helps your lender determine if you’ll comfortably be able to manage your debt payments, including your home loan payment with your income.
All that employed borrowers have to do to prove their income is submit their W-2 statement. Those who are self-employed typically need to submit much more documentation over a longer period of time. You will probably need to show tax returns and documentation around your business, like profit-and-loss statements as well as any other supporting information.
Since self-employment is deemed more risky by your lender, and the traditional criteria for proof of income might mean not being able to borrow as much money, lenders tend to push no-documentation loans for self-employed borrowers, where proof of income isn’t required.
However, this convenience comes at a cost. No-documentation loans usually come with significantly higher interest rates. Don’t be fooled. A couple of percent here and there doesn’t sound like a lot, but when applied against a sizeable home loan, it adds up. Not only are you looking at paying out more in your monthly payments, which could place extra challenges on your household income, but you are also looking at paying a lot of extra money over the term of your loan. Is it worth it?
Options for a Self-Employed Home Loan
Have you thought about an Income Express Loan as an alternative? This is a good option to receive a self-employed home loan. Borrowers are usually only required to submit a year or two’s personal and business bank statements as proof of income, streamlining the process.
Your credit score will determine how far back you need to go with your bank statements (i.e. if you have a credit score of at least 640, you need 24 months of bank statements. If you have a credit score of 680 or more, you need 12 months of bank statements).
BrightPath can help you secure a self-employed home loan. Call us at 888-222-6003 or contact us online.