5 Tips for self-employed home buyers
August 27, 2018It can definitely pay to be the boss. For many out there, being self-employed has some serious perks. You can set your own hours, open the door to unlimited income potential, and follow your passion. Sometimes, though self-employed entrepreneurs run into snags when applying for mortgages or other lines of credit. It can be difficult for those who are self-employed to prove income, or stability and viability. Semper offers flexibility that few other lenders offer, including programs that work well with self-employed borrowers. There are a few things you can do before you apply, though, that help set you on the path toward home ownership. Here are a few ways to improve your mortgage approval odds as a self-employed entrepreneur:
Register and License your businessAs a self-employed worker, it’s important to be able to show your income is steady, ongoing, and legitimate. One of the best things you can do is make sure your business is registered. This indicates you’re well-established and serious about continuing self-employment.
Keep separate, detailed business recordsAs someone self-employed, you may have multiple sources of income that change from month to month. This makes it important to keep separate and detailed records. You’ll want to make sure your business records and finances are totally separate from your personal finances. Meaning separate business bank accounts and credit cards. Gather all required receipts, business licenses and documents detailing income and expenses when it’s time to apply for a loan. Most loan programs for those who are self-employed will require at least two years of documentation. In some cases, you may be able to qualify with just 12 months’ so be sure to ask your loan consultant what they’ll need.
Show your incomeThose who are self-employed will often write off a lot of expenses when they file taxes. This lowers their tax burden but it can make their net income a lot lower than it would be. There are a couple ways to address this issue for those who are self-employed and looking to buy a home: First, you could make sure you’re able to show a net income – that means income after write offs – that meets the debt-to-income ratio your loan program requires. Acceptable debt-to-income ratios vary but they’re usually around 30-45%. There are also options for certain qualified borrowers that allow income to be calculated with bank statements instead of tax documents. In these cases, it may be a little easier for a self-employed borrowers to qualify for a home loan. These are called “bank statement” programs and work well for certain self-employed borrowers
Plan AheadAs self-employment income can be a little tricky to verify, you’ll improve your odds of being approved if you can save a little extra cash before you apply. If you have more money to put down, or have a healthy emergency fund, it may go a long way to boost your approval odds. Extra savings can help show that, even if your business takes a slight dip, you’ll be able to comfortably make your payments.
Consider a Co-borrowerTo boost your odds of approval, you may want to consider a co-borrower, especially if they are a w2 employee. A co-borrower could be your spouse, significant other, or trusted friend. A w2 co-borrower can help show there’s a source of steady income to pay back the debt. Some programs require co-borrowers to also live in the property being purchased, while others do not. These are called occupant and non-occupant co-borrowers, respectively.
Need help figuring out what else you’ll need as a self-employed home buyer? Schedule a consultation today with one of our experienced loan professionals.