If you’re self-employed, getting a mortgage can be a lot harder than it would be if you were working for someone else. What can you do if you want to buy a house but don’t have a full-time job?
The good news is most lenders are willing to work with self-employed borrowers once they’ve taken a few extra steps. Follow these tips to smooth out your mortgage application process.
You’ll need access to at least the last two years of your personal tax returns that show enough income to qualify you for the mortgage you want. Depending on the type of business you own, you might have to provide corporate tax documentation. Let your accountant know about your plan to get a mortgage well ahead of time so that you can decide how your tax return will show enough income to qualify you for a mortgage down the line.
You’ll also need other documents, including personal and business account statements, a profit and loss (P&L) statement for the business, and a business tax return, if applicable.
Lenders may take a deep dive into your business documents, especially if you’re not wildly successful. If you have small ownership interests in other companies, expect them to ask for documentation pertaining to those as well. Anything special or different about your financials means lenders are going to be extra-interested and will require more documentation.
Lenders like to see that you have some extra cash in a savings account, called “reserves”. When you’re self-employed, having even more cash on hand, such as six months worth of mortgage payments, may improve your odds of getting approved for a mortgage.
Keep your documents as organized as possible. A lender will want to see where certain deposits came from or how you paid for major expenses. A cash gift, for example, may have to be documented with a letter stating no repayment is needed.
If your credit isn’t perfect, consider offering the lender a higher down payment in order to offset a lower credit score. An FHA loan, which allows lower credit scores and higher debt-to-income ratios, may also be an option. Or, if a business partner or relative is willing to help, ask if they’d be willing to cosign your mortgage.
Talk to a mortgage broker who deals with different sorts of lenders, some of whom might be better suited for self-employed individuals.