Self-Employed Mortgage Pro Tips
Approximately one third of the American workforce is now self-employed, at least partially. That means that many of traditional models for mortgages just don't apply to 33% percent of the population! Fortunately, both regulations and financial institutions have also evolved with the changing workforce, and people with non-traditional employment still have paths to securing affordable home loans. Those loans, however, aren't quite as straightforward as many QM mortgages, and a few important tips could make a big difference in getting a loan that's going to work best for a the self-employed borrower. First, it's important for a borrower to understand that every lender is a bit different. Even though most mortgage companies in today's market are offering solutions for self-employed borrowers, that doesn't mean they are all the same. It's a good practice to shop around and weigh as many options as possible to find the loan package that works best for your unique financial situation. It should also be noted that some bank statement and non-QM loans can require higher down payments, more stringent credit score minimums, or other potentially prohibitive requirements. As you prepare to seek a home loan, do everything in your power to get your credit score healthy, save for a down payment, and so on. This doesn't mean that a lower credit score or smaller down payment is a deal breaker - rather, it's something to be aware of, especially if you are self-employed. Perhaps the most important tip of all, however, comes down to the type of loan you initially seek. If you are self-employed, it may be best to first look at bank statement mortgages, using your bank documents to verify income and NOT your tax returns (as many other loan types will require). The reason here is quite simple: bank statements will give a clearer picture of your actual income to a lender. If you're self-employed, especially as an entrepreneur, your tax returns will likely show a lower amount of total taxable income because of deductions related to your business. In fact, some lenders MUST use your tax returns if you include them in your initial documentation - so it might be a good idea to hold off, presenting only your bank statements or business P&L documents as income verification unless tax returns are specifically requested. Hopefully these few tips will make it easier to secure a home loan for you or any self-employed people you may know. There typically aren't one-size-fits-all mortgages, so you'll have to do your due diligence to find the right fit. However, the more knowledge and preparation you have going into the process, the easier it will be! Get your ducks in row in terms of credit score and saving for a down payment, explore your options, and be aware of the best documentation for the type of loan you're after. These steps alone will help put you on the path to success!