In today’s entrepreneurial-focused economy, a lot of people have left their cubicles to pursue a path of self-employment. In a lot of cases, this means more money and a more flexible work environment!
Unfortunately, in spite of all the perks to self-employment, there are also a few pitfalls—one of those being the ability to easily qualify for a mortgage. Self-employment doesn’t make getting a mortgage impossible, but it does make it more challenging.
With the right steps and savvy, getting a mortgage can be just as easy for you as it is for someone with a high-paying desk job, but the steps you’ll have to take to get there will just be slightly different.
What to Expect
Unfortunately even if you’re bringing in as much money annually as somebody with a traditional, stable job, a lot of lenders will be wary of offering you a mortgage. This shouldn’t turn you off from obtaining a mortgage. Yes you’ll have to do a bit more shopping around for the right mortgage broker, but it’s absolutely possible.
How to Improve Your Odds
Due to the general bias of mortgage lenders towards self-employed prospective homeowners, you’ll want to beef up your application a bit if you want to be taken seriously.
Here are a few ways to do exactly that:
- Improve Your Credit Score
- Offer a Large Down Payment
- Save up Cash Reserves
- Establish a Track Record
- Provide Documentation
Whether you’re applying for a mortgage or a student loan, the higher the credit score, the bigger the loan and lower the interest. Do everything you can to build up the highest credit score possible before you start the mortgage application process.
The larger the down payment, the less likely you are to default on your loan and walk away. This will eliminate a lot of the risk that mortgage lenders might feel. You’ll also need to borrow less money, which lenders find favorable.
If you can show lenders that you have a stacked emergency fund, they won’t have to worry about what is going to happen if your self-employment income decreases before you’ve paid off your mortgage.
You’ll have a harder time being taken seriously if you’ve only been successfully self-employed for a few months, no matter how successful you’ve been in that time period. It’s best to build up a positive track record of self-employment for at least two years before applying in order to get the best mortgage rate.
Every piece of documentation helps when you’re applying for a mortgage as somebody who is self-employed. Tax returns, profit and loss statements, and balance sheets will all show that you’re being transparent and will improve mortgage lender’s trust in you.
Overall, the path to securing a mortgage as a self-employed individual might take a bit longer, but it’s most definitely a possibility.
If you’re self-employed and are looking to explore your options with mortgages, contact Northwood and see what we can do for you!