Self-employment has become increasingly popular in recent years, with more and more people choosing to work for themselves. However, being self-employed can make it more difficult to obtain a mortgage. Lenders typically require more documentation and proof of income from self-employed borrowers. If you're self-employed and looking to get a mortgage, here are some things you need to know.
Documentation Requirements
When you're self-employed, you'll need to provide more documentation than someone who is employed by a company. Lenders will typically want to see your tax returns for the past two years, as well as your profit and loss statements. They may also ask for bank statements and other financial documents. Be prepared to provide as much documentation as possible to help demonstrate your income and financial stability.
Income Verification
One of the biggest challenges for self-employed borrowers is verifying their income. Lenders want to make sure that you have a steady and reliable source of income that is sufficient to cover your mortgage payments. This can be more difficult to prove when you're self-employed, as your income may fluctuate from year to year. Be prepared to provide detailed information about your business, including your clients, contracts, and expected future income.
Credit Score
Your credit score will also play a role in your ability to get a mortgage when you're self-employed. Lenders will want to see a strong credit history, with a score of at least 620. If your credit score is lower than this, you may still be able to get a mortgage, but you may need to pay a higher interest rate or provide a larger down payment.
Down Payment
Speaking of down payments, you'll need to have a significant amount of money saved up if you're self-employed and looking to buy a home. Lenders typically require a down payment of at least 20% for self-employed borrowers. This is because self-employed borrowers are considered to be higher risk than those who are employed by a company.
Working with a Mortgage Professional
If you're self-employed and looking to get a mortgage, it's important to work with a mortgage professional who has experience working with self-employed borrowers. They can help guide you through the process and provide you with the information and guidance you need to make informed decisions about your mortgage. They can also help you find a lender that is more likely to approve your mortgage application.
Overall, getting a mortgage when you're self-employed can be challenging, but it's not impossible. With the right documentation, income verification, credit score, down payment, and mortgage professional, you can increase your chances of getting approved for a mortgage and achieve your dream of homeownership.
