If you are self-employed, either as a freelancer or as the owner of your own business, your income can fluctuate greatly from year to year. That can make it difficult to get approved for a mortgage, although there are some things you can do to improve your chances. Here are three tips for securing a mortgage if you are self-employed.
Make Sure Your Credit Score Is In Good Shape
While your ability to pay back a mortgage is the most important
factor in approval, your credit score is a close second, and that goes
for every borrower, not just those who are self-employed. If you have a
credit score in the high range — something above 750 or 760 — it will
help you get approved for a mortgage. To boost your score, make sure you
pay all bills on time, pay down your debt levels and don’t make any new
big purchases or apply for new credit soon before you apply for a
Have a Large Down Payment
The more money a bank lends you to buy a house, the more risk it is
taking in that the money won’t be paid back. If you are self-employed
and considered a higher risk to begin with, one way you can alleviate
some of that risk is to be able to put down a large amount of money.
Putting down 20 percent is standard for a conventional loan, and you
should be willing to contribute at least that much. Putting down at
least 20 percent also will save you money in the long run, because you
won’t have to pay for mortgage insurance and you will pay less in
finance charges over the life of the loan.
Have Significant Assets
One way to put a lender at ease about your ability to pay for a
mortgage is to have significant reserves in the form of assets. If you
have large amounts of money in regular savings, brokerage and retirement
accounts, it offers a reserve for you to tap should your income take a
dive. Other forms of property, such as personal and business property
that’s paid off and has value, also help.
If you are self-employed and are thinking about buying a home,
contact a mortgage professional to discuss your situation and to see if
you will be able to qualify for a home loan.