While being an independent contractor, freelancer or entrepreneur can certainly be a freeing career choice, it also comes with some challenges. For instance, it can make getting a mortgage loan harder.
Without W-2s, a consistent salary and an employer to back you up, it’s harder to prove your income as a self-employed professional — let alone show you’re not a risk as a borrower.
Are you planning to buy a home or refinance while self-employed? These five tips could improve your chances of approval:
- Get your finances in order. You’ll need to prove your income through bank statements, invoices, profit-and-loss statements and balance sheets. Be sure they’re ready and organized before applying for your loan.
- Reduce your tax write-offs. Maxing out your deductions can seem smart, but when a home loan is on the line, it can actually hurt you. The more write-offs you take, the lower your income looks, meaning you seem like a riskier bet.
- Boost your credit score. Higher credit scores are always more appealing when it comes to getting a loan, so take time to improve yours. Pay down debts, settle any overdue accounts and ensure your credit report is accurate.
- Bring in a co-borrower. When you add a second borrower to the loan, their income is factored in, too. Make sure you choose a co-borrower with good credit, a low debt-to-income ratio and steady pay.
- Keep your work consistent. Don’t switch industries just before applying for your loan. It’s best if you’re in the same line of work for at least two years.
Getting a mortgage while self-employed certainly has its challenges, but it’s not impossible by any means. Reach out today for more home financing guidance.