Are you self-employed? Are you feeling overwhelmed by everyone saying that it’s going to be next to impossible to get a mortgage as a result. Don’t worry, we’ve got you covered!
Just because you’re self-employed, doesn’t mean that you can’t get into the house of your dreams. In this article, we walk you through the different things you need to consider when you’re applying for a mortgage as someone who is self-employed.
Have a strong work history
Whether you’re self-employed or not, having a strong work history is extremely important. Lenders want to see that you’ve been generating a steady income for at least two years. Basically, they want to make sure that you are going to be able to pay your mortgage and not default.
One thing to note is that if you have recently become self-employed, but have stayed within the same professional field, some lenders will make an exception and allow you to use your previous employment as proof of steady income as well.
All the paperwork you’ll need
When you’re self-employed, there are a few more pieces of paperwork that need to be provided when you’re applying for your mortgage. Some of this paperwork could include your tax returns, both personal and professional, for the last two-years, bank statements, recent invoices you’ve been paid for, and a list of assets, etc.
While all of this can seem overwhelming, this is all information that you should be tracking anyways, and would simply compile to provide the lender, or mortgage agent you’re working with.
Watch your tax deductions
When you’re self-employed, you have the luxury of claiming expenses. This helps lower your taxable income and your overall tax bill. But, what you really need to consider is that when applying for a mortgage, lenders tend to look at your after tax income. So, that means if you’re claiming a lot of deductions, you’re decreasing the amount of taxable income these lenders are going to look at when deciding whether or not to give you a mortgage.
If you’re claiming a large amount of deductions, it may cause your application to be declined or you may end up with a lower amount than you were hoping for. So, keep this in mind when you’re making your tax deductions.
Build up your credit score
Just like anyone else who is applying for a mortgage, you need to have a healthy credit score. So, best practices is to pay off any significant debt before you go to apply for your mortgage. I would also suggest that you have a detailed look at your credit statement to make sure there are no mistakes. That way, if there are mistakes, you can have them rectified before you go to apply.
Also, it’s beneficial to have a look at your debt-to-income ratio. Lenders will look at what portion of your monthly income goes towards paying off other debts, such as, student loans, cars, etc. You will need the help of a mortgage expert for this, but it’s the only way to know how much you would currently be approved for.
In the end…
Applying for a mortgage is overwhelming in general, but applying when you’re self-employed can seem impossible. The reality is, it’s not. There are a couple extra steps you need to take in order to apply and get approved, but it’s not nearly as complicated as people make it out to be. If you get all your ducks in a row and you make sure you put your best foot forward, chances are you won’t have any issues.