6-tips-for-self-employed-mortgage-seekersIf you’re self-employed, you may find the mortgage process to be more daunting and demanding than it is for other people (specifically for W-2 employees), but you shouldn’t let that deter you from achieving your dream of homeownership. Lenders need a little bit more information and documentation from self-employed borrowers in order to determine their ability to pay back the loan.If you’re self-employed and thinking about buying a home, utilize these six tips to help you present yourself and financial situation in the best light when applying for a mortgage.

1. Pump up your credit score

Just like with other borrowers, having a higher credit score allows you to qualify for more types of loans and better rates than having a lower credit score. Talk with your preferred lender for additional advice and ways that they may be able to help you raise your credit score.

 2. Offer a larger down payment

A larger down payment reduces the total principal amount that is to be paid over the life of the loan – in other words, a smaller loan amount to be funded. This poses you as less of a financial risk for the lender, helping to improve your odds of being approved.

3. Max out your cash reserves

Part of the risk assessed by lenders with self-employed borrowers is proof of a steady income, as well as the ability to continue making your payments in the event that your business takes a turn for the worst. The best way to deal with this uncertainty is to show them you have plenty of cash saved in some sort of emergency fund.

4. Pay down other debts

The more monthly debt payments you have, the harder it will be for you to pay your monthly mortgage payments. Therefore, you should try and pay off as much debt as you can first, particularly credit cards and car loans. This will also help to improve your credit score.

5. Paper trail of self-employment and income

Having the proper documentation to help prove you are a financially sound and successful business owner is one of the most important pieces to the application process. Every lender is different, but the general rule of thumb states you should provide at least two years of self-employment history and two years of business tax returns  (including K-1, 1120, 1120S), profit and loss statements and balance sheets.

 6. Work with your lender, not against them

It’s more common than not for a lender to come back and ask for additional documentation throughout the mortgage process. If this happens, be sure and accommodate them as soon as possible. Some examples may include a business license, signed CPA letter stating you are still in business and various other debt-to-income related documents.