(256) 539-0555

How You Can Get a Mortgage Loan while you’re Self-Employed

Undoubtedly, applying for a loan has never been an easy job. If you’re self-employed it becomes even harder to prove your income and apply for a loan. The process involves more documentation which can be tricky when you don’t have a recent paycheck. However, if you have the right documentation, and you fulfill the criteria, you can get approved for a loan. The lenders check if your income is high and sufficient to cover your monthly Mortgage Loan payments.

Here Is a Step-By-Step Process to get approved for a mortgage when you’re Self-Employed

Below are some essential steps involved in approving a mortgage for self-employed borrowers.

Income

In the process, the lender looks to verify your income stability. They usually check for the following documentation.

  • Complete PI tax returns for recent tow tax years with all complete schedules.
  • Complete income tax return for the past two years.
  • In case you haven’t filed the most recent text return, profit, and loss statement by CPA is required.
  • A written statement or copy of a business license about your business.
  • Current balance sheet.

Note: - If you’re a self-employed worker, income evaluation criteria can seem challenging.

Credit

The minimum credit score lenders look for is 620. A higher score tends to greater approval. A self-employed borrower should monitor their credit score and keep it high. There are many sites and apps where you can monitor your credit for free.

Assets & Down Payment

Lenders look for larger down payments, i.e. 20% from the self-employed borrowers.

Debt to Income Ratio

There are actually two ratios that determine whether your income is sufficient for the loan or not.

Housing Ratio

This is the ratio to new monthly house payment divided by stable monthly income where monthly house payment includes new mortgage payment, homeowner’s insurance, and monthly allocation for property taxes.

Total Debt DTI

It is the ratio of new house payment plus non-housing recurring debt divided by stable monthly income. Non-housing recurring debt includes car, student, or other loans plus payments on another real estate you may own.

DTI Complication for the Self-Employed

Loan lenders don’t differentiate between business and personal debt while approving the loan. But they include business-related debt in your DTI. This can go higher than the allowable limits.

Make Chances of Getting a Mortgage Better

You can increase the chances of getting loans by improving your credit score and credit history. Follow these tips.

  • Make bill payments on time.
  • Pay down debt.
  • Correct any errors or red flags on your credit scores.
  • Stick to revolving credit accounts limits.

Make you’re DTI Lower

  • Ensure to lower DTI to 43 percent or less.
  • Avoid taking on new debt.
  • Lower your existing debt.
  • Try to pay it off more quickly than scheduled.  

Find Below Some Important Tips to Get the Lowest Mortgage Rate

Focus on these essential points to qualify for the lowest mortgage rate of interest.

  • Ensure to have a credit score of over 720. Improve credit score and correct any errors on your credit reports.
  • Go to the lowest down payment you can afford. Make sure to go one higher than the minimum required by the mortgage lender.
  • Find the best terms by researching different lenders and rates.
  • Try to opt for a loan with a shorter term.
  • Pay upfront discounts; this tends to lower your rate.

Best Place to Find a Mortgage for Self-employed

Unfortunately, there are no mortgage lenders that have specialization in offering loans to self-employed borrowers. Mostly loans are insured by VA, FHA, Fannie Mae, and Freddie Mac. You can ask them for loans based on your requirements and credit.

Summary

While approving loans the mortgage company finds it challenging for the self-employed borrowers. Thereby, it has become essential for a borrower to have a strong financial profile overall. When you go for a mortgage loan, ensure you are all prepared for the double challenges and documentation asked by the lenders. Body like the Lawhorn Mortgage Company grants mortgage to all those who met mortgage underlying guidelines and possess a good financial record. If you qualify, you can get the loan you want.


* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.