If you're self-employed and looking to buy a home, you may have heard that it can be more challenging to get a mortgage than if you were an employee of a company. While it's true that self-employed individuals may face additional hurdles when applying for a mortgage, you usually just have to provide more details. Here's what you'll be asked for.
Proof of Income
One of the main challenges of getting a self-employed mortgage is proving your income. Unlike employees who receive regular paychecks, self-employed individuals may have variable income from month to month or year to year. As a result, lenders will typically ask for more documentation to verify your income. This may include:
Tax Returns: Most lenders will ask for at least two years of personal and business tax returns to verify your income. This can help show a consistent income stream over time.
Profit and Loss Statements: Lenders may also ask for profit and loss statements from your business. This can help show your income and expenses and give lenders a better understanding of your financial situation.
Bank Statements: Lenders may also want to see bank statements to verify your income and expenses. This can help show that you have enough cash flow to make mortgage payments.
You'll probably need tax returns from previous years and profit and loss statements from previous years and the current year to date. Both past and current bank statements are frequently required.
Credit Score and History
Another important factor that lenders will consider when evaluating your mortgage application is your credit score and history. Your credit score is a number that represents your creditworthiness. The higher your credit score, the better your credit is. Lenders will also look at your credit history to see if you have a history of making on-time payments and managing your credit responsibly.
When applying for a mortgage, you'll also need to provide a down payment. This is a percentage of the purchase price of the home that you pay upfront. The amount of the down payment you'll need will depend on several factors, including the type of mortgage you're applying for and the lender's requirements.
Documentation for Business Ownership
When applying for a self-employed mortgage, you'll also need to provide documentation to show that you own your business. This may include articles of incorporation, partnership agreements, or other legal documents that show your ownership stake.
For more information on self-employed mortgages, contact a professional near you.
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