How to get a mortgage if you are self-employed, freelancing, or an entrepreneur is a question I am often asked. Since many people today have multiple sources of income, verification to prove credit worthiness can be a bit more involved than just producing a tax return or a pay stub. Either as a freelancer or as the owner of your own business, your income can fluctuate greatly from year to year. That can make it difficult to get approved for a mortgage, but there are some things you can do to improve your chances. Here are three helpful tips for getting a mortgage if you are self-employed.
How To Get A Mortgage If You Are Self-Employed Tip #1 – Make Sure Your Credit Score Is In Good Shape
While your ability to pay back a mortgage is the most important factor in approval, your credit score is a close second, and that goes for every borrower, not just those who are self-employed. If you have a credit score in the high range — something above 750 or 760 — it will help you get approved for a mortgage. To boost your score, make sure you pay all bills on time, pay down your debt levels and do not make any new large purchases or apply for new credit during the loan process, or at any time before your loan is closed. Each change to your credit report is like a big red flag to a lender, so just do not do it.
How To Get A Mortgage If You Are Self-Employed Tip #2 – Have A Large Down Payment
The more money a bank lends you to buy a home, the more risk it is taking that the money won’t be paid back. If you are self-employed and considered a higher risk to begin with, one way you can alleviate some of that risk is to be able to put down a large amount of money. Putting down 20 percent is standard for a conventional loan, and you should be willing to contribute at least that much. Putting down at least 20 percent also will save you money in the long run, because you won’t have to pay for mortgage insurance and you will pay less in finance charges over the life of the loan.
How To Get A Mortgage If You Are Self-Employed Tip #3 – Have Significant Assets
One way to put a lender at ease about your ability to pay for a mortgage is to have significant reserves in the form of assets. If you have large amounts of money in regular savings, brokerage, or retirement accounts, it demonstrates that you have reserves to tap should your income dip. Other significant assets that a lender would like to see might include a business or rental property that has been paid off.
I hope you found these three tips on how to get a mortgage if you are self-employed helpful and you will be better prepared to work with a lender to get your dream home this year.