Getting a mortgage when you're self-employed
- It's getting tougher for self-employed workers to secure mortgages.
- Having the right paperwork is crucial to being approved.
- Taking a tax hit now could make it easier to get a home loan.
Ever since the 2008 financial meltdown and real estate crisis, banks have made some dramatic changes to their lending policies. That's making it harder for the self-employed to secure a mortgage.
If you own a company and are in the market for a home, here are a few ways to ease the process and boost your chances of getting the loan.
Have a historyIf your business hasn't been around for at least two years, securing a mortgage is going to be difficult. Self-employed borrowers used to be able to depend on stated-income mortgages -- loans made without tax documents or bank records to verify income levels -- but those days are gone.
Today, lenders want proof of stability before considering adding you to the books. They look for "a pattern that justifies the decision they're going to make," says Mike Fratantoni, vice president of research and policy development for the Mortgage Bankers Association.
"They want to be sure the borrow will be able to handle the payment over time. ... If someone is just starting a business, that's going to be problematic," he says.
If your business is in the same line of work you've had for years, some banks will make a concession and allow just 18 months of tax and income records. However, you'll need to have a near-perfect credit score and meet all other requirements of the loan.
Know the paperwork -- and have it handyStated-income loans are things of the past, so you will need to document every penny you make. Every bank has its own requirements, so find out what they are before formally applying for the loan.
"The most important guidance I can give is to understand what the paperwork requirements are," says Cameron Findlay, chief economist for LendingTree in Charlotte, N.C.
"Having that paperwork in advance definitely helps your case. You're able to go to someone and say 'Here's my paperwork, now give me a good faith estimate of what that loan is going to be.'"
Meet in person, not via phoneOnline and telephone-based lending programs are convenient. But because they're remote, you don't have much wiggle room. When you decide to apply for the loan, go to your bank in person and meet with a mortgage loan officer who specializes in loans for the self-employed.
These experts are familiar with the bank's variety of loan packages. Should you fail to qualify for one type of mortgage, they might be able to steer you to a different sort of loan.