Being self-employed has many benefits, but getting a mortgage can be harder than for people with regular jobs. Lenders want to make sure you have a steady income and have the ability to pay back the loan. Here are five important things self-employed people need to know before applying for a mortgage.
1. Lenders Want Your Income History
Self-employed individuals do not have pay stubs to provide to lenders. Instead, lenders need to see a good income history. This usually means providing two years of tax returns and profit-and-loss statements. Keep your records organized and current to avoid delays in getting your mortgage.
2. Deductions Can Affect Your Loan Approval
As a self-employed person, you may write off business expenses to reduce your taxable income. Keep in mind that these deductions can lower your income in the eyes of lenders. This may make it harder to get approved for a mortgage. If you plan to apply for a mortgage, try to limit deductions in the years before your application.
3. Expect a Higher Interest Rate
Lenders often see self-employed people as higher-risk borrowers because their income can change. As a result, you may get a higher interest rate than someone with a steady job. Make sure to consider this added cost in your budget.
4. Consider a Larger Down Payment
A larger down payment can reduce some of the risks that lenders see with self-employed applicants. Making a larger down payment can enhance your approval chances and may help secure a lower interest rate. If possible, aim for at least a 20% down payment.
5. Work with a Mortgage Broker
The mortgage process can be tricky for self-employed individuals. Working with us can help you find lenders who understand self-employed applicants. We can also help you get better rates and make the application easier.
Applying for a mortgage as a self-employed person can be challenging, but it's possible. By having solid income documents, being careful with deductions, saving for a larger down payment and working with us can greatly improve your chances of getting the mortgage you need. Understanding the process and preparing well will help you toward homeownership.
