Self Employed Mortgages

Self Employed: How to Increase Your Chance of Mortgage Approval

Just because you have decided to go it alone in business, doesn’t mean you don’t need a little help once in a while – when you want to purchase property for example. When you find a home or investment property you want to buy, you will probably need the help of a bank or other lender to finance the purchase amount, unfortunately self employed borrowers are seen as riskier applicants.

As a result, self employed borrowers are subjected to a wide range of stringent application processes and guidelines which those who earn a wage are not. In the eyes of the lender, the fact that you have been able to generate a business plan, build a thriving company, offer a unique and quality service and maintain a strong client base doesn’t equate to showing as much responsibility and security as if you had written up a résumé and applied at a company where someone else has already done the hard work.

Instead, as a self employed borrower you need to take a different tact to show your lender that you are actually more responsible than the average worker-drone mortgage holder, and the following tips can help you prove that.

Before You Apply

Your credit report is not just for keeping track of your credit card debts and bill payments, even a rejected loan application can appear as a black mark against you. Therefore, before you apply make sure you are in the best position to be approved in the following ways:

Check your credit score. Regardless of whether you are a self employed applicant or not, a lender will check your credit score, so make sure you know where you stand financially in the eyes of the finance community. In checking your score you may also be able to identify any mistakes or oversights which you can rectify. Show off your wealth. You may be able to prove your financial position to the loan underwriter through your other assets. Therefore, even if you don’t have the standard documentation to apply, you may be able to prove a large amount of savings or investments. Consistent contract worker. If you are a contract worker and can show a good history of regular employment, you may be able to be approved for a loan. Long term self employed. The longer you have been working for yourself, the more secure you will appear to the lender so make sure you can show a long history of clients who pay on time, and return for your products or services. Refinance.

Mortgage: Mortgage Financing for Self Employed Borrowers

It was not too long ago when self employed borrowers were able to qualify for mortgage financing with stated income and no documentation loans. With stated income mortgages, lenders simply asked borrowers to "state their income". If their credit was decent, their income seemed plausible for their industry, and their home appraised, they likely were able to obtain financing. With a no-doc mortgage, lenders typically just based their qualifying decision upon the borrowers' credit scores. That's it. No other supporting income, asset, or employment verification was needed. While the idea of stated income loans may have seemed like a noble effort to streamline the financing process for self employed individuals, both borrowers and mortgage companies manipulated the system which led to a disproportionate number stated and no-doc of loans entering into default as borrowers took on mortgages that they could not afford. When you coupled these unconventional lending practices with depreciating real estate values, borrowers ended up underwater and unable to refinance out of their adjustable rate mortgages or higher interest fixed rate loan. If you are self-employed, applying for and getting approved for a home loan will follow generally the same mortgage process as for someone working for an employer. However, instead of documenting your income with a W-2 and a recent paystub there will be a little more paperwork involved. You will likely be asked to provide copies of some of the following items, and possibly additional items if your situation warrants it: Those who have been self employed for two years or more will most likely have an easier time getting approved, but that does not mean you will not qualify simply because you went into business for yourself six months ago. As with any other mortgage, lenders take many factors into account - employment is just one of them. Others include your credit report and score which shows your history of repaying debt, equity in the home, and the amounts of your assets and liabilities. If you are a good borrowing candidate based on these other factors you will likely stack the deck in your favor. When you are self-employed it is important to think about your ability to take out a loan not just when you want to buy a home, but also at tax time. The self-employed borrowers who generally run into problems are those who write off a large portion of their income as business expenses in order to decrease their tax burden.

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