Are you self-employed and looking to purchase a home? There is the added stress of wondering if you’ll be approved for a mortgage due to you being self-employed.
Those who have their own business and are their own boss have many perks, but also many struggles. It can be hard to guarantee you’ll have an income. However, it also is a very proud moment when you see your business succeed.
Don’t let being self-employed stop you from getting approved for a mortgage. With the following five tips, you can help improve your odds of getting accepted for when you need a mortgage.
Different Documentation
Self-employed works have access to various tax write-offs than those who work for an employer. These tax write offs-can make your income look lower than what it actually is on paper. This can cause an issue when you’re applying for a mortgage.
You’ll want to provide extra documentation to show that you have a net income after your write-offs that fulfill the lender’s debt-to-income ratio requirements.
Prepare to Have Higher Interest Rates
For many lenders, someone who is self-employed is looked at as a higher risk to loan money. When you’re a higher risk applicant, you’ll likely have higher interest rates. It’s up to you to decide if it is worth the higher rates and if you can afford them every month.
Usually, it is worth your while because as long as you keep up with your payments, you’re only increasing your credit score. Learn how to calculate self-employed income for a mortgage to give you a better idea as to what to expect.
Keep Personal and Business Accounts Separate
In general, it’s good business practice to keep your personal and business bank accounts separate. Although high account fees make it tempting to combine both accounts to save money, it will only cause complications when you have lenders looking at your liabilities.
Keeping your accounts separate will make your life easier for not just getting a mortgage or a loan, but for running your business altogether. It will save any confusion between determining what a business expense was and what was personal.
Keep a Good Credit Score
Your credit score is crucial to you getting approved for a mortgage. To a lender, a low credit score means that you’ve struggled to keep up with repayments and bills, which puts them at risk for losing money. Whereas, a high credit score shows that you’re responsible with your payments and keep up with them every month.
Lower Your Debt Load
Debt also plays a key role in your ability to get approved for a mortgage. Too much debt and your lender will think that you cannot afford your mortgage.
Before you go to a lender, look at your current debt load to see where it’s at. If it’s too high, you’ll want to pay off as much as you can first, or consolidate it under one large loan.
In the end, the more you can do to show the lender that you have a minimal amount of debt compared to how much income you have, along with a good credit score, all of those will help increase your odds of getting approved.
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