Getting a mortgage to buy a home while being self-employed can seem like a daunting task. Don’t be discouraged prospective home owners, even FHA has loan programs for self-employed workers requiring as little as 3.5% down payment. Additionally, self-employed workers have some flexibility in regards to “stated” income that are no longer available to conventional loan applicants.
• Taxes – Ultimately the lenders decision to fund a loan will be dependent on net income against business expenses. If you have a profitable business those profits need to be reflected on your tax returns.
• Bank Statements – While bank statements are no longer considered proof of income, lenders like to see “seasoned” monies that show stability. Refrain from depositing monies that you intend to withdraw
• Business Licenses – Many small business owners such as house cleaning providers, acquire, but fail to maintain a current business license. You must keep your business license up-to-date. There are some exceptions that vary from city-to-county for business owners that provide services not exceeding $300.00 – get it done anyway and avoid the hassle.
• FICO Score – FHA still has some of the easiest credit score requirements in the loan industry. Remember, it’s not how much credit you have, it’s how you use it. Ideally your “trade-lines” will be “seasoned” with each credit card not exceeding 40% of its capacity. Talk to your lender to find the best ratios for your unique home buying scenario.
• Have Patience – The loan process for self-employed workers seeking mortgages isn’t what it used to be. While your loan officer will do his/her best to make your loan fund successfully; it’s the underwriter’s job to determine what additional documentation will be required. FHA lenders for self-employed applicants will require additional time, appraisals, and documentation.
• Time is on Your Side – There was a time when properties appreciated so rapidly that no amount of saving could keep up with appreciating prices, and every month a buyer hesitated put them further and further behind. Those days are behind us as prices begin to more accurately reflect true value as opposed to ease of access to money.
Start speaking to your lender to develop your unique home buying strategy. Be patient and prepare in advance so that you can not only get your loan approved, but qualify for the best rate and terms. Real estate is still the largest purchase a consumer is likely to make in their lifetime. With historically low interest rates and a huge housing inventory – now could be the best time for the self-employed home buyer to invest.
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