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.
If you’re self-employed, the home buying process may seem daunting; but it doesn’t have to be! With careful preparation and planning, you can make your homeownership dreams a reality. If you have any questions about qualifying for a mortgage, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!