Can You Afford A Home When You're Self-Employed?
Securing a home loan doesn't have to be impossible when you're self-employed. There may be some extra steps to take, and a little more difficulty compared to more traditionally employed people... But it's certainly possible! The big question many people have is "can I afford it?" - and because everyone's financial situation is unique, the answer ultimately has to come from careful self-examination. You can, however, use some information about the self-employed home loan process to help you understand what's possible for your current income, expenses, and overall financial profile.
The first thing to understand is that documentation and proof of income are the most important part of finding a mortgage. The more thorough (and accurate) your documentation, the less risk you pose to a lender. Many lenders are willing to take on more "high risk" clientele, but that typically comes with a higher price tag in the form of interest rates, down payment requirements, and fees. The same goes for your credit score. If your credit is in great shape, you are less "risky" to the lender.
So, while the actual dollar amounts you can afford will be determined by your own situation and budget, there are steps you can take to keep additional expenses low.
Take the time to figure out your price range for a home, what kind of monthly mortgage payments you can afford at your current income, and how much you have in savings that can be used for a down payment, closing costs, and other "one time" fees associate with buying a home. If you can make a sizable down payment, you can likely reduce your monthly payments - or at the very least, make a "deal" with your lender to cover costs, waive fees, and so on. You'll still have to figure out how much house you can afford, and knowing your estimated budget before reaching out to lenders will help smooth out the process. Still, you may be surprised at what you can afford with the right mortgage from the right lender. If you've taken the time to keep good records of you income (including tax returns, deposit slips, profit and loss statements, etc.), maintain a good credit score, and have enough savings for a significant down payment, you will be an ideal customer for a lender - regardless of being self-employed. If you truly want to be able to afford a home, but are worried about your non-traditional income, it's worth the effort (and delayed gratification) to save and save... To go through the process of gathering all of your financial documentation... To have your taxes prepared by a professional... To take steps to get your credit score in excellent shape... It may mean waiting a while to find and purchase your dream home, but in the long run, it will be much more affordable when you take the time to prepare.