Things Self-Employed Homebuyers Seeking a Mortgage Should Know

Buying a home is the dream harbored by millions, but things may not be easy when you are self-employed. Unlike people in regular jobs, self-employed people do not get a fixed paycheck or a W-2 form. Mortgage lenders may analyze your application with a bit more stringent mindset. They will check income consistency, tax returns, debt, etc.

Do not worry if you want to get a mortgage as a self-employed professional. It is still possible. You will just have to understand the process, get your documents in place, and look for the right lender.

How do self-employed people obtain a mortgage?

Self-employed people can obtain a mortgage, like those in regular jobs. The only thing is they will have to undergo additional assessment from the lenders. Mortgage lenders offer loans to people who are freelancers or own a small business. Independent contractors and gig workers are also deemed eligible.

What are the primary mortgage loan choices for self-employed people?

Even as a self-employed person, you can be considered for various mortgage options and those are:

• Regular loans: For a regular home loan, you will have to offer two years of tax returns and a credit score of 620 or so. The down payment amount can be as high as 20%, but with effort and negotiation, you may bring that down.
• FHA loans: If your credit score is not high, FHA loans are ideal. However, the down payment amount will depend on your credit score. Additionally, you will need mortgage insurance.
• Bank statement loans do not require tax returns and suit business owners. However, keep in mind that interest rates will be on the higher side.
• USDA loans: Are you seeking a property in rural regions around Wichita? Then, USDA loans are ideal for you. Ensure that your income level meets the loan norms. The nice thing is you will not need to make any down payment.
• VA loans: A qualified veteran or active-duty service member can apply for this loan, requiring no private mortgage insurance or down payment.

Things to do to improve your mortgage prospect as a self-employed applicant

Make sure that you do the following:

• Lenders check the tax returns of self-employed applicants carefully. So, ensure your tax return records are clean. Get documents like bank statements, business licenses, and debt records ready.
• Like any other mortgage applicant, improve your credit score. For a regular loan, the score should be equal to or higher than 620; for FHA loans, a score of 580 will do. Those with a score above 700 can expect lower interest rates. Clearing debts and avoiding late payments will help improve your credit score.
• It would be good if you start saving for a down payment. Most lenders prefer self-employed applicants who agree to higher down payments.