Before we get started, the first thing you should know is that I have a very unique and detailed perspective in regards to buying a home as a self employed worker. You see, not only am I self employed but I was also a mortgage broker and mortgage banker for almost 10 years. Not only did I see the process of buying a home from the self employed buyer’s side but I also had the unique perspective of seeing the process from the lenders side. You should realize that buying a home as a self employed worker is not impossibility; it is, however, a much more difficult process.
The most important item to remember when attempting to buy a home as a self employed worker is that you must have documented income. Long gone are the days where you can do stated income loans. In most cases the lender is going to want to see tax returns. In most cases they are going to want between 2 and 5 years depending on the lender. However, if you are anything like me, my tax returns don’t necessarily represent my actual income due to deductions and tax credits etc. So what can you do?
In most cases the best thing that you can do is have 24 to 36 months worth of bank statements and keep VERY DETAILED accounting records of your business. If at all possible you should also want to have between 3 to 4 months (quarterly records) of receipts in order to show that your income that you are reporting is current.
The next best thing you can do to ensure that you can not only get a loan as a self employed worker but that you can also guarantee that you will get a decent loan rate is to have a down payment; preferably in the vicinity of 20% or more of the purchase price. Some lenders even require more than that; some lenders I have worked with require up to 35% down payment. If that is just not possible then be prepared to provide additional documentation to your lender.
Given the changing mortgage market some lenders will require a copy of your business license, referrals, and if you have one a statement from your accountant. Remember that most lenders have their own underwriting guidelines and requirements. As such, you should be prepared to provide any documentation that they request regardless of how asinine it may sound. Remember, do not give them an excuse to deny your loan! Qualifying for a home loan as a self employed worker is hard enough as it is.
Finally, I would like to leave you with one last piece of advice. DON’T PLAN ON ANYTHING until the mortgage documents at closing are signed. I have been in the industry long enough to know that you can be promised the world and told that everything “looks good” only to get a denial of mortgage letter a week and sometimes even days before the mortgage is supposed to close. Don’t get stuck with out a place to live simply because you “planned” on the mortgage closing.
Remember, as a self employed worker, getting a home loan is not impossible only a lot more difficult than a standard income documentation loan. But with prior proper planning and excellent documentation of your income you can get a loan.