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self employed home owner

How to Get a Mortgage When You Are Self-Employed

Without a regular paycheck and thus a W-2 tax form, it is difficult for self-employed applicants to prove they can make consistent mortgage repayments. Lenders want to see stability, viability and consistent income.

Though self-employed applicants will not be able to provide the same documents as a regular employee, there is still a pathway that can be taken to obtain a mortgage.

What Lenders Want To See From Self-Employed Borrowers

Lenders are most concerned with credit reputation, capacity to repay and collateral. For the borrower this means showing:

  • A stable income – submission of tax returns will show gross revenue, expenses and taxable incomes.
  • Consistent work – at least 2 years of self-employed income within the industry.
  • Good credit – lenders check history for foreclosures, bankruptcies, repossessions, delinquencies and collections.
  • Cash reserves – can the borrower pay during quiet times?
  • Down payments – 30% or more may be required if a financial profile is weak.

Requirements For Mortgage Applications From Self-Employed Workers

Self-employed workers must submit full financial documentation, both personal and business. This includes:

  • IRS form 4506-T
  • Profit/Loss statements
  • Business bank statements, licenses and verification
  • List of debts and monthly payments
  • Canceled checks from rent or previous mortgages
  • Additional income from grants, social benefits or disability checks

Before applying as a self-employed worker it would pay off to plan ahead to lower risks. This could mean:

  • Saving in advance to create an emergency cash fund
  • Keeping meticulous personal and business records
  • Improving credit reports and scores
  • Making payments on existing debts
  • Reducing tax deductions by writing off fewer expenses through the business

If you cannot qualify for a mortgage as a self-employed individual, improving one’s financial profile is a good place to start. It can take time but gives you the chance to save, reduce debt and improve credit scores. Getting a co-signer, trying for smaller loans or finding work that supplies a W-2 form can all help to qualify for future mortgage assistance. As a last resort, you could hire a mortgage broker, who knows how to reduce risks and make pre-approval attainable for self-employed primary borrowers.

Though the process of obtaining a mortgage can be a little tougher for self-employed individuals, it is by no means impossible. With a little patience and perseverance, you will soon find yourself in the home of your dreams.

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