If you are self-employed and want to purchase a home, you will soon find that getting approved for a home loan can be hard. There are many restrictions for anyone who wants a mortgage, but being self-employed can bring unique challenges. Here are some things you need to know about being self-employed and getting a mortgage.
1. Prove As Much Income As You Can
One of the reasons the lenders find self-employed individuals a bigger risk is that the self-employed have a harder time proving income. If you are a contracted employee, you can bring in your contract and W-2s, and loan grantors will easily be able to see how much you make each month. So long as you stay employed by the same company, you can expect to make that much money each month. A self-employed individual can have varying income. You may have a month where you make a great deal of money and then a couple months after during which you make very little. For this reason, the mortgage lenders want to see a history of income so they can get a long-term idea of how much you make.
Additionally, some self-employed people have income coming in from many different places. Bring in documentation to prove as much income as you can. You should always use your taxes, but it can also be helpful to bring in freelance agreements, contracts, and other documentation for payments that you receive.
2. Put More Down on the House If Possible
The bigger the down payment, the less risk you are to the lender. That way, if you default on the loan they not only have the price of the house being sold to recoup their loss, but they also have the equity and down payment in the house. Putting down a larger down payment will increase your chances of getting the loan and will make your mortgage payments cheaper. Thus, it is a better option for both parties.
3. Get a Co-Signer
If the lenders are still having a hard time lending to you, you should consider getting a co-signer. Even if you know you can afford the payments, the banks will feel better having another person on the loan so that they can ensure that the house will not default. Once you have a co-signer, you can always refinance and take them off when you are able to, but it can help you to initially get into the home.
Share14 December 2016
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