Obtaining a Mortgage When You Are a Self–Employed Borrower

Written By: Glenn Michaels, Op-Ed Writer

It is a lot tougher for self – employed workers to obtain a mortgage. Having the correct paper work is crucial to being approved. Taking a tax hit now could make it easier to obtain a home loan.

Ever since the 2008 financial meltdown and real estate crisis, banks have made some dramatic changes to their lending policies. That’s making it harder for the self – employed to obtain a mortgage.

If you own a company and are in the market for a home, here are a few ways to ease the process and boost your chances of obtaining the loan.

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Have a history
If your business has not been around for at least two years, obtaining a mortgage is going to be difficult. Self – employed borrowers used to be able to depend on stated income mortgages – loans made without tax documents or bank records to verify income. Those days are for the most part gone.

Today, lenders want proof of stability before considering adding you to their book of business. They look for a “pattern that justifies the decision they are going to make.”

The lenders want to be sure that the borrower will be able to handle the payment over time. If someone is starting a business, that is going to be problematic in obtaining a mortgage.

If your business is in the same line of work you’ve had years, some banks will make a concession and allow just 18 months of tax and income records but you will have a near perfect credit score.

Know the paperwork – and have it handy
Stated income loans are things of the past, so you will need to document every penny you make. Every bank has its own requirements so find out what they are before formally applying for the loan.

Having the paper work in advance definitely helps your case. You are able to go to someone and say “here is my paperwork and now give me a good faith estimate of what that loan is going to be.”

Meet in person, not on the telephone
Online and telephone based lending programs are convenient but because they are remote, you do not have much wiggle room. When you decide to apply for the loan, go to your bank in person and meet with the mortgage loan officer who specializes in loans for the self – employed.

These experts are familiar with the bank’s variety of loan packages. Should you fail to qualify for one type of mortgage they might be able to steer you in a different direction to obtain another mortgage program.

Consider taking a tax hit
One of the advantages of self – employment is the wide range of things you deduct from your taxes. However driving down the taxable income with those deductions may make it more difficult to obtain a mortgage.

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A beefy bank account helps
Being liquid is never a bad thing when you’re applying for a mortgage, but it’s even more crucial when you are running a business. Self – employment generally causes income levels to fluctuate from year to year, and banks want to be sure you can cover the bills in lean times.

Having a year’s worth of mortgage payments liquid and in reserve in a savings account or other savings vehicle can boost you’re application’s prospects. It may be even more important than a beefy down payment, which generally only helps you get a lower rate.

Consider a co – signer
Don’t have the two years of records under your wing. but still ready to buy. Consider a co – signer. Make sure the co – signer has his or her finances in order.

About The Author

Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 

Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.