Over the last decade, getting a mortgage when you’re self-employed has become more challenging. Prior to 2007, self-employed people could often get income-stated or self-certified mortgages, but regulations designed to protect borrowers cracked down on these types of loans. Luckily, however, even without those options, you can still get a self-employed loan to buy a home.
Here’s what you need to know about the process of getting a loan when you’re self-employed.
What Is a Self-Employed Loan for a Home?
Although you may hear terms such as self-employed mortgage, there is really no separate mortgage product for people who are self-employed. Instead, independent contractors, sole proprietors, and other self-employed people apply for a traditional mortgage, but they have to jump through a few extra hoops compared to people who work for an employer.
What Do You Need to Get a Mortgage When You’re Self Employed?
To put it simply, mortgage lenders need to be sure that you can afford to make the mortgage payments during the life of the loan. When you’re employed, your paycheck stubs and the length of time you’ve been with your employer help to establish this fact. As a self-employed person, you don’t have these records.
As a result, you need to prove your income in other ways. In particular, be prepared to show at least two years of tax returns or 1-2 years of personal or business bank statements to verify income. Some lenders may require accounting records that have been professionally prepared.
What Else Can Help You?
Beyond proving your income, you also need to show prospective borrowers that you have a good credit history. Before applying for a self-employed loan, take some time to look over your credit report. If you have delinquent accounts, get caught up on your payments, and address any old bills or liens that show up on your report.
On top of that, you should get together a deposit. The more you can put down on the property, the less you need to borrow, and the more attractive you become to mortgage lenders. As a general rule of thumb, 10% is the ideal down payment for most mortgages. However, BrightPath typically accounts for 5% of a downpayment. High down payments can be very challenging to come by if you’ve invested your liquid assets in your business.
How Do You Apply for a Self-Employed Loan?
To apply for a self-employed loan for a home, you should find a lender with a history of working with self-employed people. Then, you should spend some time making sure your credit looks alright and gathering financial documents for your business.
Finally, apply for the loan. As soon as you get approval for your self-employed loan, you can start shopping for your dream home. To learn more, contact us at Bright Path Brilliant Mortgage Solutions.