If you own your own business, you may have wondered whether this could make qualifying for a mortgage more difficult. And while you may have different considerations to keep in mind than a W-2 employee buying a home, with the right mortgage and real estate professionals by your side, you can achieve your dream of home ownership. Here are 4 tips for buying a home if you’re self-employed.
Save up for a down payment – Being self-employed can make you appear on paper to be a risky borrower, but you can avoid this by saving up for a down payment. Having the ability to put down a significant down payment may make you a more attractive candidate for a mortgage.
Take steps to improve your credit score – Even if you have good credit, it is worth it to speak with a credit counselor or financial planner about what you can do to improve your score. A higher credit score means you may qualify for more and be eligible for better rates as well. Just as with a higher down payment amount, a high credit score may make you a less risky candidate for a home loan.
Keep track of your business expenses – While it’s important to show your lender that you have a profitable business, it’s also important to make sure your overall taxable income is high enough to qualify for a home. If your business expenses are almost as high as your gross annual revenue, your taxable income will be low, which is how your lender calculates how much house you can afford.
Pay off your debts – Your debt-to-income ratio (DTI) refers to your obligation on long term debts divided by your gross monthly income. Your DTI is another factor that your lender will consider when pre-qualifying you. If you have credit cards with outstanding balances or other consumer debt, it’s a good idea to pay these off before applying for a home loan. Your monthly debt will be lower and your cash flow will be higher.