How to Get a Mortgage When Self Employed

Being self employed has all the benefits like freedom, doing what you like and determining how much you can make. However, it can become an issue when you have to apply for a mortgage. Most of the mortgage providers prefer employees due to the assured steady income. The employees tend to be more creditworthy most so when they have strong credit. Applying for a mortgage when self employed also needs more documents which the lender might be unwilling to handle.

That is not to say you have to start reapplying for jobs to qualify for a mortgage. These are the ways to become an attractive mortgage candidate when self-employed.

1. Check your debt-to-income ratio

The debt to income (DTC) ratio is the money you spend to repay your outstanding debts compared to your income. The lender is interested in these figures to determine the amount of money left which you can commit to repaying the mortgage. The lower the DTC, the higher the chances the lender will give you the mortgage.

You calculate the DTC by dividing your monthly recurring debts to the income before taxes. You don't include the recurring expenses like utility, rent, repairs and property insurance.

The ideal DTC should be lower than 50%. Otherwise if it's more than 50% then consider clearing most debts before applying for the mortgage. You might also consider the Berwick waters house and land packages by Frasers property that are less risky to purchase through mortgage.

2. Offer a large down payment

The amount of money you are willing to put up as a down payment determines the risk of having you as a borrower. The lender believes that having more equity in the home makes it harder to default during the tough times. You are less of a risk when you put more money upfront as it also becomes easier to clear the remaining balance without straining.

In addition to the down payment, you should also keep aside a large emergency fund. This shows you will still be paying your premiums even when business takes a nosedive.

3. Provide documentation

Applying for a mortgage when self employed involves multiple documents to determine risk. Being in a position to provide the documents whenever the lender needs them increases your chances of getting the loan. Some of the documents needed include;

• * 1040k tax forms for the past two years.

• * Monthly profit and loss statement from the last time you last filed your returns.

• * Both business and personal bank statements from the past three months.

• * A list of all assets you own.

• * A detailed list of debts and monthly payments.

• * Additional sources of income; social security, alimony, etc.
  
  

4. Talk to the lender

Having all these documents and finances ready takes time. However, you don't have to wait until you have that big amount of down payment and emergency fund before approaching the lender. Instead, start immediately if you have some substantial amount in place. By talking to the lender, they will guide you on the various mortgages available and the ones that suits you best. They will also help you with the various needed documents and how to go about it.