How to Purchase a Home when Self-Employed

by on November 5, 2011

We all know that lending got a little tougher after the Mortgage melt-down which occurred in 2008. Some would say that it became impossible for someone who is self employed to get a loan. While on the surface, that seemed like an accurate statement, it is not true. One just needs to know how to go about it.

Here are a few simple rules to help make it possible to get a loan in these challenging times:

  • Borrowers who earn most of their income on 1099s should be prepared for extra preparation, paperwork, and discussion of their financial standing when applying for a mortgage.
  • It’s important that independent contractors show that their income is stable and increasing. For some, that may mean declaring all their income on their tax returns, and not, say, carrying anything over to the next year, even if it means paying more taxes.
  • Consistency in income is key, so those applying for a mortgage this fall or winter should be prepared to provide proof for year-to-date income.
  • To increase the chances of getting a mortgage approval, borrowers should pay off other debts, including balances on credit cards.
  • Pinpointing the source of the down payment also is helpful.  If the down payment will be a gift from a relative, borrowers are advised to submit an account statement showing the funds are available and awaiting the home purchase.  Same goes for borrowing from a 401(k).
  • Freelancers also should be prepared for a more in-depth analysis of their ability to repay the debt.  Submitting tax returns from the last three years and explaining any significant differences in income is advised.

If you are considering a home purchase please contact myself or my lender partner, Stephanie Brown with Prospect Mortgage. We can help you navigate the obstacles of purchasing a home.

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