If you are self-employed, getting approved for a mortgage can be a bit more challenging than it is for someone who is employed by a company. Lenders are typically more cautious when lending to self-employed individuals because their income can be less stable and more difficult to verify. However, there are several steps you can take to help increase your chances of getting approved for a mortgage. Here are three key things you can do:
1. Improve your credit score and debt-to-income ratio (DTI). These are two of the most important factors that lenders consider when deciding whether to approve you for a mortgage. Your credit score reflects your creditworthiness, while your DTI measures your ability to repay your debts based on your monthly income. These numbers are essential to improve your chances.
To improve your credit score, start by paying your bills on time, reducing your debt, and checking your credit report for errors. You can also work with a credit counseling agency to develop a plan to improve your credit score. To lower your DTI, focus on paying off your existing debts, increasing your income, and avoiding new debt. Lenders typically prefer borrowers with a DTI of 43% or less.
2. Gather the appropriate tax documents and balance sheets. One of the challenges of being self-employed is proving your income to lenders. To qualify for a mortgage, you will need to provide tax documents and balance sheets to demonstrate your income and financial stability. These documents typically include your tax returns for the past two years, profit and loss statements, and balance sheets.
Make sure to keep accurate records of your income and expenses, as well as any receipts or invoices that support your earnings. This documentation will help you prove your income to lenders and improve your chances of getting approved for a mortgage.
3. Look into self-employment mortgage options. If you’re self-employed, you may want to consider exploring self-employment mortgage options like FHA loans, bank statement loans, or enlisting a co-signer. These options may have more flexible underwriting requirements than traditional mortgages.
FHA loans are backed by the Federal Housing Administration and are available to self-employed borrowers with a credit score of at least 580. Bank statement loans are another option for self-employed borrowers, and they allow you to use your bank statements to prove your income instead of tax returns. Finally, enlisting a co-signer can help you qualify for a mortgage if you don’t meet the income or credit requirements on your own.
Getting approved for a mortgage if you’re self-employed can be challenging, but it’s not impossible. By taking these steps, you can increase your chances of getting approved for a mortgage and achieve your dream of homeownership. If you have any questions, don’t hesitate to reach out to us by phone call or email. We hope to hear from you soon!