Being self-employed can be a serious roadblock when applying for a mortgage (or anything else where someone will be factoring your finances into their decision). Because you own your own business and direct your own salary, you look like more of a risk that someone who works in a cubicle.
There’s still the misconception that when you say you are “self-employed,” you spend most of your day surfing the internet, when, in fact the opposite is true; in order to make as much money as people who work in a cubicle all day, you probably have to work just as hard, if not harder. Getting a mortgage when you are self-employed doesn’t have to be difficult—in fact, it can be easy, with a little forethought. Here’s how:
Verifying Your Employment
Lenders want to be able to verify that you actually have income. When you work a traditional job, this is easy; you just present pay stubs or tax returns. When you are self-employed, the process is a little more involved. In order to prove that you are self-employed and gainfully self-employed, you’ll need one of the following:
- Proof of bond insurance
- Letters from clients detailing your services
- Proof of membership to relevant professional organization
- Business license
- Proof of liability insurance
- DBA that is at least two years old
Many lenders will take other forms of documentation—just ask what you need to present.
Documenting Your Income
It’s extremely important to be able to prove that you do make money. As a self-employed individual, you probably already keep a detailed list of what you make, where it comes from, and your expenditures. Lenders will probably want to see your books, as well as tax returns, and any other applicable tax documentation, depending on the structure of your business.
Know Your Business Assets
When applying for a home loan, you will probably want to have a good grasp on which of your assets are business assets and which are personal. These are often intermingled, as you might work from home, use the same computer for business and play, keep all of your money in one account, etc. Parceling out what can be parsed can help a lender decide whether or not they want to lend to you. When in doubt, don’t be afraid to ask your lender directly.