So you are fulfilling your dream by being an entrepreneur, or not working the paycheck to paycheck office cubicle cycle, and you are happy with your lot in life, but you would like a house as your next step.
The problem is, without that paycheck to paycheck pay stub and proof of stable employment, lenders are hesitant to give you a mortgage. It’s a catch-22 that many self-employed people find themselves in. What do you do?
It’s really not impossible, though. In fact, here are some things you should know to help you get approved for that dream house financing.
First Step – It’s Difficult, But NOT Impossible!
There are a few things that lenders look for that you can work on ahead of time to prove your worth before applying for a loan. With these important financial factors, you are much more likely to see approvals instead of denials.
Start in advance. Don’t expect to go out tomorrow and get a mortgage; these things do take time. With that said, the first thing you need to do is ensure that you have a steady, if not increasing, income of at least two years. Obviously without that your chances are slim, whether you are self-employed or not.
In addition to stability, good credit is key. There are some simple ways to beef your credit up while you are building your worthiness. FICO advises you to check your credit report score regularly to make sure there are no late payments incorrectly reported and that your creditors and balances are correct. You should also take this time to set up payment reminders to ensure that you are paying your current bills on time, since this is a big thing lenders look at.
Keep at least three months’ worth of mortgage payments in the bank to prove to your future lender that you have their mortgage payments even if an emergency crops up.
With these steps started, you are now officially on your way to a new home mortgage.
What You Will Need For Your Mortgage
Knowing that you are now going to have a mortgage somewhere in the near future because you are getting your finances in hand, you will also need to begin preparing the necessary paperwork. Many home loans, like Fannie Mae self employed home loans, may require a little extra documentation.
Be sure you have the following information at your fingertips:
- Personal and business tax returns for two years
- Profit and loss statements
- Business bank statements
- Your business verification (DBA) and business license
- A complete list of your debts and monthly payments
- An IRS Form 4506-T, which gives permission to the lender to request tax return transcripts
- An accounting of any additional income or payments (disability, Social Security, etc.)
You don’t want to get approved, only to lose out because you were missing a crucial piece of information.
You Can Have Your Cake and Eat it, Too
Yes, you can be a business owner, self-employed, and an entrepreneur, and still have a home mortgage. It is a little more complicated of a process, but it is possible.
Start planning financially today, and then start planning your dream home that will be yours within the next few years.