You already know that it may be a harder for you to get a mortgage loan than for someone who works at a big company. However, it is not impossible; Self employed borrowers use net income for DTI (Debt to Income ratio). Salaried borrowers use gross income for assessing DTI.
This guide shows you what kinds of documentation you’ll need to show a lender, the most common reasons the self-employed may get denied for a loan and how to make yourself more attractive to lenders.
Documents you need to show the lender besides, having good credit and a low debt to income ratio (DTI)…
The lender needs bank and brokerage account statements and proof of any other debts or assets you own. Proof of income is often the issue so be sure to provide personal and business income tax returns from at least 2 years past also a quarterly profit and loss statement.
Keep in mind each bank is different and call ahead to get a list of all required documents.
Commonly the self-employed get denied for a loan…
By not being self-employed for long enough. Often self employed borrowers take a lot of deductions, which shows less net income on tax returns. This basically means you’re not showing enough income on paper for lenders to think you’ll be able to pay your mortgage easily.
How to look more attractive to a lender…
Have a lot of cash on hand, show the lender you can make the mortgage payments even without that income coming in, save up a year’s worth of mortgage payments in a savings account.
Consult with your accountant to make sure that you’re showing enough income, you may have to do an amended tax return to show more income (Beware: This may mean you have a new tax bill to pay). Last resort: Purchase an immediate annuity, which will start paying you regularly immediately(Pricey). Or, consider getting a co-signer and using a lender who has worked with self-employed borrowers before.