When it comes to securing a mortgage, self-employed individuals often face additional challenges compared to traditional employees. Lenders may view self-employment as riskier due to fluctuating income and less straightforward financial documentation. Lets go over some tips to help you navigate the mortgage process application and make securing your mortgage as straightforward as possible!

First, it is important to understand who lenders consider to be self-employed and how they view those borrowers.

Who is Considered Self-Employed and How Are They Evaluated? 

Lenders classify you as self-employed if you own 25% or more of a business or if your income primarily comes from a business you own. This includes freelancers, contractors, sole proprietors, and small business owners. Lenders assess the stability and consistency of your income. They will require more documentation to verify your income’s reliability and sufficiency.

Tips for Getting Approved

1. Organize Your Financial Documents

Prepare the following:

  • Tax Returns: Two years of personal and business returns.
  • Profit and Loss Statements: Year-to-date statements.
  • Bank Statements: Personal and business account statements.
  • Business Licenses: Proof of business operation.

2. Maintain a Strong Credit Score

To improve your credit score:

  • Pay Bills on Time: Consistently pay bills by the due date.
  • Reduce Debt: Lower your debt-to-income ratio.
  • Monitor Your Credit Report: Correct any errors.

3. Save for a Larger Down Payment

Aim for at least 20% down. This reduces the loan amount and may lead to better interest rates.

4. Show Consistent Income

Provide two years of stable income and highlight any business growth.

5. Separate Business and Personal Finances

Use separate accounts for business and personal expenses to simplify records.

6. Balance Tax Deductions

Maximizing deductions can lower your reported income. Consult a tax professional to find the right balance.

7. Get Pre-Approved

Pre-approval shows you’re a serious buyer and helps focus your home search.

8. Work with a Mortgage Broker

Brokers can help you find the best deal and assist with paperwork.

9. Consider Alternative Lenders

Look into alternative lenders who may have more flexible criteria for self-employed borrowers.

10. Provide a Strong Business Plan

A solid business plan demonstrates stability and growth potential to lenders.

Although Getting a mortgage as someone who is self-employed requires a bit of extra planning, it is entirely achievable. By being prepared, maintaining good financial habits, and seeking professional help, you will be able to successfully navigate the application process and secure your dream home!

Want to learn more? Contact us at 780.792.0009 or [email protected]