Buying a Home as a Self Employed/Small Business Owner
Obtaining a mortgage to buy a home when you're self-employed can be a bit more challenging than when you're employed by a company, but it's definitely possible. Here are some steps you can take to increase your chances of getting a mortgage:
Build a strong credit score: Lenders will look at your credit score when determining your eligibility for a mortgage. Make sure you have a good credit score by paying all your bills on time, keeping your credit utilization low, and disputing any errors on your credit report.
Keep your finances organized: Lenders will want to see that you have stable and consistent income. Keep your financial records organized, including tax returns, bank statements, and profit and loss statements.
Save for a larger down payment: Lenders are more likely to approve a mortgage for a self-employed borrower if they have a larger down payment. This shows that you're financially responsible and reduces the risk for the lender.
Hire an accountant: Having an accountant prepare your tax returns can help ensure they are accurate and can help you take advantage of all the tax deductions you're eligible for. This will also help you prove your income to lenders. Lenders usually ask for your tax returns for the previous 2 years so ensure that your income (not revenue) reported in the last two years shows that you can maintain a mortgage. This should preferably be at least a third of the purchase price of the home you would like to buy.
Look for a lender that specializes in self-employed mortgages: Some lenders specialize in providing mortgages to self-employed borrowers. These lendwers are more likely to understand the unique financial situations of self-employed borrowers and offer more flexible underwriting guidelines.
Consider getting a co-signer: If you have a family member or friend with stable income and good credit, they may be able to co-sign on your mortgage. This can help you qualify for a larger loan or a better interest rate.
Be prepared to provide additional documentation: Lenders may ask for additional documentation to verify your income, such as bank statements, profit and loss statements, and tax returns. Be prepared to provide these documents to the lender in a timely manner.
Remember, the process of obtaining a mortgage when you're self-employed can be more complex than when you're employed by a company, but with preparation and persistence, it's definitely possible.