Mortgage Options for The Self-Employed
Self-employment offers people a ton of freedom and fulfillment, but it certainly comes with some downsides. One of the largest, of course, is unpredictable income. Whether it's a freelancing career or owning a business, most self-employed people experience windfalls and lean times over the course of each year, sometimes with very little indication of when those times will come. Because of this instability month to month, it can be difficult to establish the financial history necessary to qualify for a traditional mortgage - but self-employment shouldn't prevent you from owning a home!
So, what options are available for people with nontraditional income? Stated Income
Less common since the housing crash (but still available from some lenders), Stated Income mortgages allow applicants to state their income without verification. This is an enticing option for many self-employed people, who don't have traditional W2s, pay stubs, or other simple ways of proving income. Depending on the lender, you may still have to verify assets, provide tax returns, or supply other documentation, but these types of mortgages can still be beneficial for people with great credit and large amounts of cash on hand - even if their income isn't consistent.
It's worth noting that these types of loans often come with higher down payments, higher interest rates, and steeper requirements. Still, if you fall into certain financial circumstances, they can be the best option for you.
Traditional Mortgages - With Extra Steps
Traditional mortgages are not entirely out of reach for self-employed people. Conventional, FHA, and other more common types of mortgages can still be available - but there will likely be additional hoops to jump through if you have nontraditional income. Like a Stated Income loan, you may find higher rates or steeper requirements, as well as other necessary documentation, terms, property use requirements, and so on. It all comes down to showing your ability to repay the loan, and various lenders will have different steps you need to take before they approve. As you shop for mortgages, pay close attention to the requirements of each.
Your Unique Situation
Among self-employed individuals, no two portfolios or bank accounts look quite the same... And this means that being approved for a mortgage is at the discretion of the lender (and dependent on your ability to meet the requirements). The best advice is to explore as many options as possible, and weigh the pros and cons of each. It's always a good idea to make sure your credit score is in the best possible shape, save for a hefty down payment, and get all of your financial documentation in order. Having these key elements at your disposal will make the process smoother. You'll be able to see more directly which mortgage programs you qualify for - and give potential lenders an accurate picture of your current situation, which can then help them advise you on options. At the end of the day, self-employment can be a bit of a barrier to finding a mortgage - but it's not insurmountable by any means. With some diligence and preparation, you can find an option that works for you - at rates you can afford, even with less than predictable income.