Mortgage applications can be complex, even for those with traditional employment. So, if you’re a self-employed entrepreneur or freelancer with various income streams, you may need clarification about how your financial portfolio fits into the mortgage equation.
Good news: you’re not alone. With the rise of the gig economy, self-employment is increasingly common, making your situation more relatable than you might think. In this article, we’ll demystify the homebuying process for self-employed folks like you.
The first essential step for anyone who is self-employed and starting their homebuying journey is understanding their financial portfolio.
Unlike traditionally employed borrowers, your income and expenses vary. Elements like ‘tax returns,’ ‘business profits,’ and ‘deductible business expenses’ are components that lenders examine closely because they’re indicators of your financial stability and affect your mortgage eligibility.
Lenders generally require two years of tax returns alongside other essential documents like profit and loss statements to gauge your financial health. Strong financial records increase your chances of being seen as a suitable mortgage candidate, possibly securing more favorable rates.
Your credit score is pivotal in any mortgage application but becomes even more critical when self-employed. A higher credit score can counterbalance the unpredictability of your income, reassuring lenders of your creditworthiness.
How can you enhance your credit score if it’s less than ideal? Here are some quick tips:
Remember, improving your credit score is a marathon, not a sprint. Start as early as possible, be consistent, and over time, you’ll see a positive change that could make your journey to homeownership smoother and more enjoyable.
Preparation is key when you’re self-employed and looking to secure a mortgage. Unlike traditionally employed applicants, you’ll likely need to provide a more comprehensive set of documents to verify your income and financial stability.
Documents to Gather
Questions to Prepare For
Being self-employed, you might face unique questions from potential lenders, such as:
By preparing for these questions and having all your essential documents in order, you’ll be better positioned for mortgage application success.
Don’t let self-employment discourage you from starting your homeownership journey. With the right info and preparation, you can navigate the mortgage process just like anyone else.
If you’re ready to take the next step, consider contacting a banker at The Federal Savings Bank who can guide you through the intricacies of the mortgage process.
Or jump in and start the loan process with The Federal Savings Bank—we’re focused on mortgages and dedicated to your homebuying dreams.
Subject to credit approval. Terms and conditions may apply. Property insurance is required on all loans secured by property.
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner. For tax advice, please consult a tax professional.