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Obtaining A Mortgage When You’re Self-Employed

Nov 20, 2014

By: Steph Medeiros

As intimidating as buying a home is to a traditional employee, to those who are self-employed, it can seem unattainable. However, with the proper knowledge and by following a few extra steps, a qualified self-employed buyer can become a home owner.

According to the United States Department of Labor, approximately 10,507,000 Americans are self-employed, with about 1 million more reporting self-employment as a secondary source of income. With the current economic climate, self-employment has boomed, rising along with corporate down sizing and telecommuting capabilities. While many mortgage lenders are aware of the increase in self-employed loan candidates, they still consider them to be higher risk borrowers.

Some Things You Might Encounter As A Self-Employed Borrower:

* Higher Interest Rates

* Reduced Ability To Negotiate

* Higher Down Payment Requirement

* More Paperwork

As someone who is self-employed, mortgage lenders may see you as a less-attractive loan candidate. Expect to be quoted higher interest rates than what you might see on the company’s website or advertisement. Those rates are typically for people who are considered ideal borrowers due to verifiable incomes and excellent credit scores.

Lenders may also want to see a lower loan-to-value ratio, which will require a larger down payment. As for the extra paperwork, you won’t be able to provide your lender with W2s for the past couple years like traditionally-employed borrowers. Instead, you’ll need to provide things like tax returns from the previous year, a current business license, a letter from your accountant, and financial statements showing the income and value of your business.

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