While securing a mortgage when self employed can be a little more difficult, the good news is that many lenders are willing to work with people who earn a living as independent contractors or operate their own small business. The process typically requires additional paperwork and documentation, and also the need to overcome fears by lenders that your cash flow may fluctuate in a manner that makes rendering mortgage payments on time somewhat difficult. Before actually attempting to lock in a mortgage when self employed, take the time to pay down existing debt, gather the data lenders are likely to require, and in general prepare to present yourself as a good credit risk.
Putting your financial house in order is essential if you want to get a mortgage when self employed. Current debts like credit card balances should be retired if at all possible. Along with paying off current debt, make it a point to avoid incurring new debt that rolls over from one month to the next. It never hurts to use credit cards, then pay off the balances when the statements arrive, since this helps to showcase your ability to manage debt efficiently.
Keeping current on household bills like rent and utilities also generates positive comments on credit reports, which is very important when attempting to secure a mortgage when self employed. Since there is a good chance you will need to file additional paperwork along with supporting documents to demonstrate that you do earn enough to manage house payments, keep bank statements, customer invoices, and other records related to your payables and receivables organized. Often, you will need to supply copies of tax returns for at least the last two or three years in order to demonstrate that your ongoing income level is sufficient to manage a mortgage responsibly.
Once your affairs are in order, finding lenders to work with is the next challenge faced by people who want to secure a mortgage when self employed. Keep in mind the pool of lenders willing to work with you may be somewhat smaller, making it necessary to spend more time locating the right institutions. There is also a good chance that the interest rates offered may be slightly higher, depending on how various lenders perceive the risk involved with extending the loan.
Depending on where you live, several different loan options may be available. In the United States, one strategy for people who want to acquire a mortgage when self employed is known as the Stated Income/Stated Asset Mortgage, or SISA. This type of loan usually requires the submission of relatively little documentation on your part. Instead, data from sources such as tax agencies will be used to verify your income. The lender will still likely pull credit reports to determine if you are credit worthy. In some cases, there may be a fee to cover the costs of receiving a certified copy of your tax returns directly from the agencies, but the fee is usually modest and precludes any speculation regarding falsification of the information.
Over time, you may be able to approach the lender again and negotiate a lower rate of interest, especially after having a spotless record of payment for several years. If the lender is not willing to budge based on your continued good credit and the consistency of your payments, scout around for refinancing opportunities. With a proven track record for managing a mortgage to your credit, you may find other lenders that are more willing to provide better rates and terms.
