Self-employed individuals may find it difficult to get approved for mortgage loans because income documentation standards are much stricter than they are for traditional employees. However, if you can provide sufficient proof of your income and assets, you can still secure self-employed mortgage loans that can help you buy the home of your dreams. Below is how to qualify and apply!
First Step – Self-Employed Mortgage Loan Eligibility Requirements
In order to qualify for a self-employed mortgage loan, you will need to meet the following requirements:
• You must have been self-employed for at least two years.
• You must have a good credit score.
• You must have enough income to cover the mortgage payments.
• You must have enough assets to cover the down payment and closing costs.
• You must be able to prove your income with tax returns and financial statements.
• You should plan on having more than 20% of the purchase price saved as a down payment.
• Consider taking out an equity line of credit instead of getting a second mortgage because it has lower interest rates and may not affect your personal credit score as much.
• Find out how much house you can afford by using our mortgage calculator tool.
Second Step – Choose the Right Mortgage Loan Lender
Not all lenders are the same and each has its own guidelines when it comes to self-employed mortgage loan requirements. It’s important that you do your research and find a lender that not only meets your needs but who you feel comfortable working with. Be sure to ask about their requirements for self-employed borrowers as well as what documentation they will need from you.
Once you’ve found a few lenders that seem like a good fit, it’s time to start the application process.
Third Step – Prepare for Verification for Self-Employed Mortgage Loan
When you’re self-employed, there are a few extra things you’ll need to do to prepare for the mortgage application process. Your lender will likely require additional documentation to verify your income. This may include tax returns, profit and loss statements, and 1099 forms. Be sure to have these documents ready when you start the application process to streamline things.
Fourth Step – Submit the Application for Self Employed Mortgage Loan
You will now need to submit a mortgage application. The requirements for this will vary depending on the lender, but you will likely need to provide documentation of your income, employment history, and assets. Be prepared to answer questions about your business and why you are seeking a loan.
Fifth Step – Save Money on Fees for Self-Employed Mortgage Loan
When you are self-employed, you are required to provide additional documentation to your lender in order to verify your income. This can often lead to higher fees charged by the lender. However, there are ways to reduce these fees. One way is to ask the lender for a no-income verification loan. Another way is to get a co-signer with good credit who can help you offset the risk of defaulting on the loan.
Co-signers may be family members or friends, and their responsibility would be the same as if they were borrowing money themselves. Some lenders will charge an upfront fee for the service of processing the application, but it could save money in the long run because co-signers typically qualify for lower interest rates than people with low or average credit scores.
Sixth Step – Attain Documentation and Other Details for the Mortgage Loan
Applying for a self-employed mortgage loan requires more documentation than that a standard mortgage loan. When you are self-employed, you will need to provide tax returns, profit, and loss statements, and other financial documents to prove your income. While this may seem like a lot of work, it is important to remember that your mortgage lender is just trying to protect their investment. By providing these documents, you are showing that you are a responsible borrower and that you will be able to make your monthly payments on time.
Seventh Step – Finalize Your Mortgage Loan Documents
You’ve found the perfect house and your loan has been approved. The final step in the process is to sign the loan documents and close on the loan. Here are eight things you need to do to finalize your loan:
1. Review all documents carefully. Make sure you understand everything before you sign anything. If there is something you don’t understand, ask your lender or real estate agent to explain it to you.
2. Get insurance for your home.
3. Ask your lawyer to review the mortgage documents with you.
4. Check that you have all of the required forms and papers, such as copies of recent pay stubs, W-2 forms, bank statements, etc.
5. Pay off any outstanding debt on your credit report that might affect your credit score so it will be higher when applying for a mortgage loan (for example an overdue medical bill).
6. Request a copy of your three most recent credit reports from each major reporting agency.
7. Order an appraisal on the property you want to buy – this is especially important if you are purchasing a second home or investment property where values can change more quickly than for primary residences.
8. Take one last look at all the paperwork before signing on the dotted line!
Eight Step – Close the Mortgage Loan Deal
You’ve now reached the final step in the process of how to get a mortgage when self-employed. This is where you’ll sign all the paperwork and officially become a homeowner. Congrats! The journey wasn’t easy, but it was worth it.
