Buying a home is a significant mark, but to self-employed individuals, the journey to homeownership becomes a bit bewildering. Without the standard W-2 to demonstrate consistent earnings, most freelance workers, contractors, and small company owners fear qualifying to buy a house. The best news is that with the proper planning and information, taking out a home loan is absolutely doable.
This short guide will lead you through the principal steps and decisions to be made, from showing your income to choosing the right loan, to guide you towards turning the dream of owning the home of your dreams into a reality.
Gathering Income Information
The investors will be concerned with the consistent, steady income to service the loan. As you are not given regular pay stubs, you will be asked to produce different paperwork to demonstrate a clear idea of the finances.
Lenders will usually request a minimum of two years of your tax returns to view your yearly income history. They will most also request current bank statements – typically the previous 12 to 24 months – to ensure your cash flow and to view that your business revenue is steady.
Another beneficial item is a comprehensive profit and loss statement that has been professionally prepared by your accountant to give a professional look at your revenue and expenses of the business that will further help your cause.
Considering Your Loan Choices
The self-employed individuals can opt for different kinds of home loans that encompass different terms with them.
A conventional loan is a highly-popular choice, but typically has strict criteria as to credit score and history of income. You will generally need to have a good credit history and be in a position to fully document your income during the past two years.
FHA loans are popular. These insured Federal Housing Administration loans are less strict. They typically accept lower credit scores and can be obtained with a lower down payment, so they are a suitable choice if you do not qualify within the strict guidelines of a standard loan.
If you or your spouse served in the military, a VA loan is a great choice. They are secured by the Department of Veterans Affairs and usually feature no down payment and easier credit standards.
Another wonderful option is bank statement mortgage home loans in SC. This loan will use your bank or company bank statements to demonstrate your revenue in lieu of tax returns, which can be ideal if this is the best evidence you have to prove your reliable income.
How to Enhance Your Application
To be as competitive as possible, try to strengthen your application. First, review your credit score and do what you can to improve it, such as making timely payments on bills and keeping credit card balances low.
Additionally, savings towards a higher down payment can help, as this decreases the risk to the lender as well as demonstrating your stability. Lastly, try to decrease the debt-to-income ratio with the elimination of current debts such as car loans or credit cards prior to the date of the mortgage application.
Pave the Road to Homeownership
Though working freelance inserts some additional steps into the home purchase procedure, it needn’t be a deterrent. By working hard to document your earnings, broadening your search to all your financing possibilities, and building up your credit picture, you can easily negotiate the home loan procedure. With planning, you’ll be turning the keys to your new home in no time!