How To Secure Mortgage Loans For Self Employed Individuals

Securing mortgage loans can be a strenuous process for any prospective homeowner. This is even true for prospective homeowners who use the top mortgage tips. Self-employed individuals such as yourself may have even more hurdles to navigate during the process. Lenders often avoid offering capital to self-employed persons due to the higher risks that accompany a less stable income. However, securing a mortgage loan has been getting easier over the past few years as the trend of self-employment rises. In this post, we will cover how to secure mortgage loans for self employed individuals.

Verify Stability Of Income

Nearly all lenders require proof of reliable and consistent income when applying for a loan. To meet that requirement, verify the stability of your income. Most lending institutions specify that income does not qualify if it is not stable and on-going. However, these guidelines are a bit looser for self-employed individuals. Many businesses go through high and low periods. When you are beginning the process of securing a mortgage, prepare up to five years of tax returns to show the stability of your business. A statement from your accountant on the validity of your income will also be helpful. Ensure that you can verify your income when trying to secure a mortgage loan as a self-employed individual.

Distinguish Between Business And Personal Income

Additionally, there is a big difference between business and personal income, and you will need to show the distinction. Getting your business and personal income mixed up can have negative consequences on your credit. Open a business account with a bank for work-related expenses. Lenders will easily be able to evaluate your risks if there is a clear distinction between your business and personal income. Use the top bookkeeping tips to keep your expenses separate and easy to track. If a self-employed individual can clearly distinguish between business and personal income, they are more likely to secure a mortgage loan.

Consider Conventional vs FHA Loans

You do have options when searching for lenders, so consider choosing between conventional loans and loans granted through the FHA. Many conventional loan lenders only require one year of tax returns and proof of consistent income, but these laxer guidelines result in higher rates. The FHA offers loans at lower rates, but with more requirements. These include proof of consistent employment of at least two years and verification that the industry you work in has a high likelihood of continued profitability. You may also be asked to complete a profit and loss statement. When attempting to secure mortgage loans for the self employed, consider choosing between conventional and FHA loans.

Shop Around For The Best Rates

As you narrow down your search for a mortgage loan as a self-employed individual, shop around for the best rates. Visit different lenders’ websites and compare rates and fees to ensure you are making the best choice. The mortgage rates offered to self-employed individuals are often higher than they are for others. This is because lenders consider you to be a greater risk due to the instability of your income. However, if you are able to make the necessary down payments, there are lenders who will offer rates comparable to those offered to the conventionally employed. No matter your situation, shop around for rates as you look to secure mortgage loans as a self employed individual.

Prepare Documentation For Application

After you compare rates and find the best lender for your situation, prepare the necessary documents for the application. This is one of the most crucial steps in the process. These documents include your tax records as well as any 1099 forms provided by anyone who has paid you. The lender may request 1099 forms for at least the past two years. Prepare to provide records of expenses and accounting records as well. The process will still be longer than it would be for a traditionally employed person, but having these documents ready will streamline it. If you have these documents prepared for the lender, it will be easier for you to secure mortgage loans.

Self employed individuals face more challenges as they attempt to secure mortgage loans. For this reason, it is wise to follow a mortgage checklist. The process of securing mortgage loans requires that you verify the stability of your income as well as distinguish between business and personal income. As you search for a lender, consider choosing between a conventional or FHA loan and be sure to shop around for the best rates. When you are ready to apply, prepare all of the necessary documents to hand over to the lender to expedite the process. Now you have a better understanding of how to secure mortgage loans for self employed individuals.