The best part about being your own boss is the freedom that comes with the job. As the head of your own business, you get to schedule your own time, work on the matters that interest you the most, and report to no one but yourself. But sometimes, the freedom that you have can be a liability when you go to the bank for a home loan. Your friends who get a W-2 might be able to get an instant home loan with ease.

Banks like predictability. They adore having steady, bi-weekly deposits into their accounts because it means that the chances of default are low. Self-employed homeowners’ income inherently fluctuates because of the nature of the business. It does not mean that purchasing a home is impossible, but rather that you have to have your act together when pursuing the process of purchasing your home. 

Getting your finances in order before beginning the house hunt will allow lenders to see that you are a dependable borrower! 

Boost Your Credit Score Early

Because you have a fluctuating income, the lender will examine the rest of your financial profile through a magnifying glass. Credit scores become the single most decisive aspect of a loan application. Your good credit score can at times offset the risk associated with self-employment, ensuring the lender that you can handle loans effectively even if you have an unpredictable income source.

First, check your credit report for any errors that need to be corrected well before you apply for a mortgage. This could involve disputes that could take time to sort out. Then, work on paying down any outstanding credit card debts that charge you interest. It would be best to keep the amounts owed to less than thirty percent of your credit limit. Avoid making any new purchases or applying for credit before you apply for a mortgage. This could cause your scores to fall.

Demonstrate Income Consistency

Banks often require a minimum of two years of self-employment history to grant a mortgage. Also, they will calculate your earnings over the past two years to establish how much to give you for a mortgage. It is a very positive trend to see that your earnings per year are increasing. But in case your earnings had decreased in the previous year, they may consider that income or even deny your loan.

A common trap to avoid is overtax deductions. As an entrepreneur, you automatically want to write off your costs to reduce your taxable income. But lenders want to see your net income, which is your bottom-line profit after accounting for all costs. If you claim all your costs to the point that you pay no taxes, on paper you look like you haven’t made any money. It may be a good idea for you to keep your discretionary deductions low for the two years preceding the purchase of your home.

Organizing Your Financial Documents

The paperwork necessary for a self-employed home loan in SC is considerable. Although someone with a regular job may only require a W-2 form, you will be required to provide substantial evidence of the health of your business. The trouble of searching about for this paperwork at the last minute could upset the entire process.

Begin assembling your documents now. In most cases, they are going to request to see your personal and business tax returns for a minimum of two years. In addition to this, they are also going to request a year-to-date profit and loss statement done by a reputable accountant. 

Additionally, they are going to require a number of months of personal and business statements. Getting these things together for the lender to review in a digital file that they can quickly e-mail to you will go a long way in making this process easier.

Working with a Mortgage Broker

It’s most likely that trying to access a large retail bank is where self-employed borrowers will encounter rejection. Such banks have inflexible criteria that fail to consider subtleties in being an employer of oneself. This is where a mortgage broker proves invaluable.

Brokers essentially are middlemen who can shop your file with dozens of other wholesale loan providers. They are aware of which loan providers are amiable to working with self-employed clients and who offer certain loan programs that emphasize cash flow over tax return records. An experienced loan broker can assist you in framing your file with the right impression and relating your cash flow discrepancies to the suitable loan products.

A Path to Homeownership

All in all, securing a home mortgage as an entrepreneur really requires some additional footwork; still, this is absolutely possible. By focusing on your credit, optimizing your income history, structuring your documentation, as well as securing the guidance of the appropriate professional, it really isn’t difficult at all to get past the intricacies of the home mortgage market. Do not get disqualified in securing your new home simply because of the additional steps required in the process!