If you are self-employed, you may face a unique set of challenges when it comes to getting approved for a mortgage. With a potentially fluctuating yearly income working against strict home lending guidelines, you may find yourself having to jump through a few hoops during the home buying process. And while that certainly doesn’t mean that homeownership is out of reach for the ranks of Americans that work for themselves, it does mean that you should take the time to prepare yourself and your finances before seeking approval.
Covering some financial basics can help you get approved for loans when you are self-employed
The most important thing you can do in the time period leading up to your home purchase is to be fiscally prudent in every area of your finances. This means making payments on time, maintaining a balance in your savings account and keeping good records of both income and expenses. Doing so can help you get approved for potentially lower mortgage rates than you would otherwise.
- Follow credit tips for raising and/or improving your credit score. This means taking steps to pay off existing debt, managing your monthly cash flow, and keeping balances low. A positive credit history can lower your perceived risk as a borrower and increase the odds that a bank will take you on as a mortgage customer and offer you competitive mortgage rates when you are self-employed.
- Keep outstanding records of both income and expenses. Your word will not be enough to give a mortgage lender the confidence needed to approve a mortgage loan for you when you are self-employed. Keep detailed records and make sure your numbers are accurately and honestly reflected in your annual tax return. You do not want confusion when it comes time for mortgage approval. Mortgage rates can be impacted by not only your credit history, but by your income as well.
- Don’t overspend and drain the balance of your savings account. In the same way that a positive credit history can impact your ability to get approved for a mortgage, lack of liquid cash can also hurt you. As much as possible, be frugal in the time period leading up to your home purchase.
- Get pre-approved for your loan. A mortgage pre-approval can help you set realistic expectations as to how much home you can afford. By getting pre-approved you can find out if you are up against any particular challenges before you find the home of your dreams. If time is on your side, you can then work to eliminate or reduce the impact of the financial imperfections from your past.
Be Prepared. Get pre-approved for your mortgage early.
If you are self-employed and looking to secure a mortgage loan, you should consider starting the process well ahead of time. Compare mortgage lenders and choose one that will help you find a mortgage solution that caters to your unique borrowing needs. Then take the time to apply for mortgage pre-approval. Knowing in advance wither or not you can get approval will give you time to make any necessary adjustments to your financial circumstances. Adjustments including improving your credit score or decreasing your debt may be necessary to minimize your perceived risk as a borrower. And, if for some reason you find out you cannot get approval on your own, preparing in advance will give you time to seek out a co-borrower or make additional financial plans.
Sponsored content was created and provided by RBS Citizens Financial Group.