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This is a guest post by Lori J Sanders. Read more about her at the end of the post.
There’s no debating the fact that being self-employed offers quite a few benefits you just don’t get with a conventional job.
You don’t have that pesky boss looking over your shoulder all the time, you get to make your own decisions about the direction of the business, and if you work from home you don’t even have a commute.
Of course, there are always negatives to balance things out, and with self-employment getting a mortgage is often one of them.
However, just because you’re self-employed doesn’t mean you’ll never be able to get a mortgage.
It just means the rules are a little different…
If you’re self-employed and looking for a mortgage, set aside some time to fill out lots of forms and documents to complete the process. Being self-employed means that you don’t have the benefit of a steady pay check from an employer, so you really have to prove that the income will be there on a consistent basis before you are approved.
A handful of years ago, a self-employed person could essentially declare an income and in many cases they’d be approved on that number. Now, the rules have tightened and you have to show that the number you state is actually true. This means tax returns and any other documents the lender wants to see during the approval process. You also might have to show that you’ve been making this type of money for more than just the previous tax year. In short, you will have to back up your claims with evidence.
Don’t Hurt Yourself
One area that might help the self-employed at a certain time, could hurt when it’s time to apply for a mortgage. Since you have to prove your stated income when looking for a mortgage, using creative accounting techniques to lower your income at tax time, could hurt your chances.
You can’t very well say, “I know it looks like I made $50,000 but I actually made $80,000.” Many creative accounting techniques aren’t legal anyway, but that doesn’t stop people from using them to lower their income and pay less in taxes. Keep it as honest as possible and don’t hurt your own chances of getting a mortgage down the road.
Being organized and truthful with your statements and returns is important from your end, but it’s also wise to seek out a lender that will benefit your situation. Don’t just put all your eggs in one basket and dive in with the first one that comes your way. Take the time to shop around a little and investigate before you sign on. Even if they are receptive to your self-employed status and seem to want to help, check out a couple of others before you commit. They will still be there when you’re done, and if they say they won’t be, better off to go elsewhere anyway.
Look for lenders who aren’t against giving mortgages to self-employed people, and who have a solid track record and reputation in the community. Just because a place agrees to give you a mortgage doesn’t automatically mean they are trustworthy and professional. It’s important to keep in mind that just because you are self-employed doesn’t mean you don’t deserve the same as everyone else, or that you should accept any less.
Specific Bank Programs
With more and more people entering the ranks of the self-employed, many banks and other lenders have developed specific programs geared toward self-employed mortgages. Many of these programs make the process easier and will base the loan on your personal credit history and not on that of the business.
If you already own a home and are looking for an additional loan, a self-employed mortgage loan program will help you leverage your home equity to get what you need. These loans are good for home renovations for your family or the self-employed business, debt consolidation or purchasing another property.
Whatever the exact details of the situation, if you’re self-employed and you require a mortgage, gather up all your information and bring it in to a mortgage professional so he can take a look. If you feel like you’ll be searching for a mortgage in the future, get in the habit of saving all your statements and receipts and organizing everything by year.
It might take a little more effort and you might have to prove yourself a little more, but if you are self-employed you can have a mortgage just like all your friends and family who work for someone else.
About the Author:
Lori J Sanders was born and raised in Toronto. She has been a proponent of business education, investing, a self-help author and a motivational speaker. She operates on her own blog and she speaks up on whatever that comes to her mind about finance, investment, mortgage renewals. With various real-estate investments, she retired at the age of 46. But she still continues to operate external business ventures and various investments. For more information, follow her on twitter @sandersjlori