Regardless of whether you’re a business owner, independent contractor or sole proprietor, you meet the IRS definition of “self-employed.” You’re also in good company. As of August, more than 10.2 million Americans were self-employed — many of them having bought a house since entering self-employment. So, if you’ve heard that it’s extra hard to get a home loan while self-employed, don’t believe it. The reality is that self-employed people are approved for home loans every single day. In fact, home loan requirements are quite similar for those who are self-employed and those who work for others. Up next, find out how to get a home loan if you are self-employed. Specifically, we’ll look at three keys to making this happen.
1) Have proof of steady income
No different than if you’re a W-2 wage earner, having proof of steady income is essential to securing a home loan if you are self-employed. And, of course, your income not only needs to be reliable. It also needs to be enough to convince a lender that you can comfortably make a mortgage payment. Where things get a bit tricky here is with documentation. Unlike people who work for someone else, you won’t receive a W-2 that clearly spells out your income. So, it’s up to you to document this in such a way that a mortgage lender won’t be able to question your earnings.
How do you do this? Tax returns and bank statements are your best bet. When it comes to banking, do yourself a favor and set up a separate bank account exclusively for your earnings. This way, your statement will clearly reflect your business income, and it’ll be handy when your lender needs it. If all your income is via PayPal, this simplifies things even more. It’s because PayPal keeps a record of each deposit into your account. Simply email or print a copy of your deposits, and you’ll have all the evidence of steady income you need.
2) Show that your business is sustainable
Along with wanting to know your earnings are steady, mortgage lenders need to be assured your business income is sustainable. Whether you do 1099 contract work for someone else or you own a business, you must be able to show that your source of income isn’t going anywhere. If you’re self-employed, lenders generally prefer that you be in your role for at least two years. However, lenders tend to view the duration of your self-employment on a case-by-case basis. It’s possible for you to receive approval for a mortgage loan after being self-employed for only a year. Contact us at Fairway of the Carolinas to find out if the amount of time you’ve been self-employed will be enough to put you in the game for a mortgage loan.
3) Maintain strong credit
Credit plays a critical role in how to get a home loan if you are self-employed. But how do you keep your credit score up? Pay your monthly bills. Liquidate debt. Get a credit card and pay the full balance on time each month. Ultimately, you don’t need perfect credit to be approved for a home loan. But you should aim to boost your credit score as high as possible. Depending on the type of loan you’re seeking, you could get a loan with a score as low as 580 or even 500 (less likely). Fortunately, it’s possible to raise your credit in a hurry. Fairway’s internal Creditool team can also help. It’s best to consult your Fairway of the Carolinas mortgage adviser on ways to improve your credit quickly.
Now that you know something about how to get a home loan if you are self-employed, what are you waiting on? Give us a call and let us walk you through all the necessary steps. You’ll be glad you did. And so will we.