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Applying for a Mortgage When You're Self-Employed
If you're self-employed and considering buying a home, our real estate agents are trained to help you through the maze of red tape associated with obtaining a mortgage. More than anything, you've got to have your paperwork in order, to satisfy the mortgage company's requirements. Being self-employed adds an extra layer to this process.
Lenders don't make special requirements for self-employed home buyers, although it may seem like it. Regardless of where you work, they ask for proof that you are financially solvent. This includes confirmation of steady income, a good credit rating, and a low debt to income ratio.
Steady Income
Unlike those employed by a big company, the income of those who are self-employed can vary month to month. Expect to provide the lender with two years of financial records, including profit and loss statements and tax returns.
When looking at a home to buy, the temptation is to buy all the home you can. Buying a home well within your means is a way to help ensure getting that loan. Remember, they're going to be looking at your net income, not your gross income. That's your income after business expenses are removed. The goods news is, there are many nice Augusta homes for sale, at reasonable prices.
Credit Rating
A good credit rating can help lower the interest rate on your loan. As a general rule of thumb, anything above a credit score of 759 is considered excellent. As a business owner, how you handle your business credit will affect this.
Keep your business expenses separate from your personal ones, using separate credit cards and bank accounts. While this will not affect your credit rating, it will make it easier for the loan officer to see what are business-related expenses.
Take the time to verify that your credit score is accurate and that there is nothing misreported on your credit report. There are several ways you can gain access to your credit report. Our real estate agents can help with this if you don't know where to find it.
If you can, pay off credit cards, but don't close those accounts. Accounts which you have held for a long time can positively affect your credit score.
Debt-to-Income Ratio
The other significant figure mortgage companies look for is your debt-to-income ratio. This is how much of your monthly income goes into paying off your debt. Your business debt will figure into this, too, which can be a problem for some business owners. You may need to pay down that debt to qualify for a loan, regardless of how much you earn.
By and large, lenders are looking for a debt-to-income ratio under 36%, although they will approve loans with a ratio as high as 43%. This includes the mortgage you're seeking. So if your business is carrying a heavy loan burden, it can help to pay it down before seeking a mortgage.
One of the things that Josey Young & Brady Realty can do for you is help lead you through the maze of getting your mortgage approved. Contact us if you're a small business owner, looking to buy your home, and let our agents give you a hand in this process.