Buying a Home When You’re Self-Employed

How to Apply for a Mortgage When Self EmployedBeing your own boss is becoming more and more desirable and easier to achieve as years go on, yet it doesn’t always bring all positives. Choosing to become self-employed is a great option for many, but it creates more work when it comes to tax time and making large purchases. Those who try to buy a home while self-employed might find that the process isn’t as easy as it is for those with a traditional paycheck.

Going Through The Mortgage Process

While on the surface the same paperwork is still used and many things look the same, trying to get a mortgage while self-employed does bring in a few nuances that can make a big difference to the end result. Most people know that getting approved for a home loan largely depends on one’s income, and that generally speaking, the larger the income the more money can be loaned.

When a self-employed individual applies for a home loan, instead of providing a W2 like many others, they are required to submit two years of their taxes, including all of their business write-offs. Ultimately this means that due to business expenses, the documentation will reflect their net profits to be much smaller than they actually were. This can lead toward a smaller dollar amount being approved, or even a denial if the numbers just aren’t favorable.

Lenders will also look at the history of the business, as a self-employed individual tends to pose more of a risk than one with traditional income. If there are discrepancies on the books, or income tends to dramatically fluctuate year to year, it might pose another red flag from the bank’s perspective.

How To Overcome Potential Challenges

It’s not hopeless to try to obtain a mortgage when you’re self-employed; rather, it just means taking a few specific steps to make the information on your application look good. Here are a few easy ways to make this process easier:

  • Keep exceptional business records. Lenders will ask questions about every transaction, so make sure you have an answer.
  • Try to reduce debt as much as possible. This will be beneficial no matter where your income originates.
  • Utilize a payroll service to pay yourself with a W2 rather than an owner’s draw. It holds a bit more weight in the lender’s eyes.
  • Register your business and keep it separate from personal finances. Consider using a business credit card, for example, for large purchases.

Having A Little Faith

Many people who are self-employed are able to be approved for a mortgage with little to no problems at all; it simply depends on each individual situation. By timing your application in such a way that you can show business growth year after year and keeping meticulous records, your ability to buy a home shouldn’t be compromised, be it in Aldie or elsewhere.

Remember, the benefits of being self-employed are worth it, and they shouldn’t be sacrificed just because you’re trying to get a mortgage. As long as the suggestions above can be implemented, you’ll be ready to go house shopping any day now!

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