Follow these tips to prepare and get a self-employed mortgage
Applying for a self-employed mortgage can make you anxious, but we’re here to settle those nerves. Getting approved for a mortgage when you work for yourself can be harder to achieve than when you are simply a full-time employee of a company. There’s more paperwork involved, more preparation, and more attention to detail. You also need to be realistic about what amount you can borrow.
However, you can get a mortgage when self-employed and fulfill your dreams of becoming a homeowner. Here are some tips to prepare for a self-employed mortgage application.
Assess your financial situation.
Before you start shopping for homes, it’s important to evaluate your business and personal finances. Make sure your income is well documented for your loan officer. The bank will not just look at your personal finances, but want to see the financial health of your business as well, as your main source of income. Some questions to ask yourself:
- How much debt do you and your business have?
- Is the income from your business enough to cover mortgage payments and your debt?
- What monthly mortgage payment could your business support?
- Can you show at least two years of growing income or at least steady income from your business?
- How much of a down payment can you afford and cover closing costs?
Answering these questions honestly will help you prepare for your mortgage application, and also help you set realistic expectations for how much home you can afford.
Your debt-to-income ratio plays a key role in whether a lender will approve your mortgage and for how much. The standard DTI expected is lower than 43%.
Using a professional software to manage your books will make it easier for your lender to confirm your business income. If you don’t have this software, a detailed spreadsheet can be used as well.
Check your credit report.
Today, it’s easier than ever to stay on top of your credit with many free ways to receive your credit report. Sites like CreditKarma.com make it easy to track your credit score and evaluate which factors are causing your score to move up or down.
Your credit score will dictate if you get approved, for what rate, and with which terms. Your FICO credit score is the most commonly used metric by lenders to determine the risk of a borrower. The better your credit score the better rate and terms you will receive on your mortgage. Credit scores fall on a range from 300 to 800. Very Good credit is between 740 and 799. Exceptional credit is 800 to 850.
Choose the right lender.
Larger banks can have strict standards when it comes to self-employed mortgages. Online lenders tend to work with a wider range of borrowers, but they can charge higher interest rates.
Masihi Financial can help you secure a competitive rate and terms and help you navigate the self-employed mortgage process. Making it quick and easy to get the funding you need for your dream home.
What to do during the application process.
So, you’ve turned everything in, provided all of your documents, proof of income, and now you can relax right? Well, to a degree. While your application is being reviewed, it’s important not to ruin your odds of getting approved. Here are some things to do and not to do while you wait for mortgage approval.
- As a self-employed borrower, it’s especially vital that you do not add new debt while your mortgage application is under review. Don’t go applying for a new credit card or buying a new car. Lenders will become nervous if it looks like you’re piling on new debt.
- Start saving for your down payment. Keep your down payment safe and contribute more to it if possible.
- Don’t email your lender every day. The mortgage process takes time. Your lender may reach out with additional requests for documents before you get approved. At Masihi Financial, we know speed is vital to your home buying journey, and we do everything in our power to push your mortgage through as quickly as possible.
Are you a self-employed borrower? Let us help you get a mortgage that meets your financial needs. Contact us today.