Self-Employed? Tips on Applying for a Mortgage.
Assistant Vice President, Mortgage Lending, NMLS # 1087502
Without the paycheck stub and W2 forms most employees are provided, being approved for a mortgage loan when you’re self-employed might mean an added a layer of complexity to the loan process.
When it comes to the bank looking at your tax information for proof of income, the figure on paper may be much lower than the actual amount you take home because of your business deductions. This could negatively impact the amount of loan you’ll qualify for.
For people who are self-employed and want to apply for a mortgage, I suggest taking these steps in the months — and even years — leading up to their loan application:
• Keep detailed records from your business to show to your lender. Plan to provide tax returns and schedules from the previous two to three years.
• Plan ahead with your business expenses. Talk to your tax advisor, and see what tips he or she might have.
• Compile a year-to-date financial statement. Year-to-date (YTD) refers to the period of time from the beginning of the year to the present, and this statement will detail the current performance of your business.
• Prove that your business is successful. We like to see increases in your income. As lenders, we analyze risk, and one red flag of risk is decreasing income.
• Save up for a bigger down payment. If you aren’t able to show that you make enough to mortgage the home that you want, saving up cash for a larger down payment will help you achieve the home you want without having to rely on being approved to borrow that money.
Buying a home while working for yourself definitely requires advance planning, but by staying organized and providing key details to your lender, you can achieve the dream of owning both your own business and your own home.