If you’re self-employed, mortgages can be hard to come by. Lenders can be pretty strict, even with a normal job. If you’re self-employed and looking for a mortgage, you could be in for a long fight. There are mortgages designed for the self-employed, but those are not always the best option. Here are some tips to help self-employed borrowers find a mortgage.
Self-employed borrowers are risky.
Many mortgage lenders consider self-employed borrowers a high risk for default – and this doesn’t come out of nowhere. You could lose your income at the drop of a hat, as self-employed persons have no guarantees of job security.
While it might seem a little unfair, especially if you are doing pretty well for yourself, the lender does have to protect his/her interests. It’s nothing personal, the lending business is cutthroat when it comes to these situations.
You’re going to have to prove that you have the income, stability, and the money to buy a home right now.
Would you benefit more from a conventional mortgage?
Just because you’re self-employed doesn’t mean you have to apply for a mortgage for self-employed borrowers. Many self-employed people will qualify for conventional mortgages; they’re just not sure how to go about it.
To qualify for a conventional mortgage, you’re going to need:
- Up to three years of tax documents supporting your income claims;
- Bank statements;
- Asset statements;
- Proof of any income that you might want considered (this could include alimony statements, your divorce decree, retirement or capital disbursements).
It can be hard to figure out just what you need in your situation, and that’s why you may want to work with a professional. Working with a mortgage broker or other mortgage professional will help you understand your chances.
You’ll have to show that you’re credit-worthy.
If you want to be able to get the right mortgage, whether it’s a conventional or a mortgage for the self-employed, you’re going to have to show that you’re credit-worthy.
The higher your credit score, the easier it will be to borrow. If your credit scores needs some help, consider getting a co-signer or co-applicant for your application.
This will help raise how much income you have behind you, how much a mortgage lender is willing to lend you, and your credit score. Two applicants almost always work better than one – so if you’ve been turned down once, keep trying.
How much do you have already?
The higher your down payment, the better mortgage you’re going to be able to get.
Sometimes having 30% down instead of 20% will help. After all, even a self-employed person can accumulate savings and make investments, right? Even if you had credit issues in the past, being able to put down a large payment can smooth a lot of feathers.
About the Author:
Erin Thompson is a mortgage broker and financial blogger for Homebase Mortgages. HBM is a Toronto mortgage broker that provides home mortgages, mortgages for the self-employed, home equity loans and lines of credit, debt consolidation, private mortgage lending and second mortgages. Visit our home equity loans page for more information.