According to Forbes magazine, 28.2% of Americans are self-employed. That is 65% more than the number of self-employed Americans just 10 years ago. As the ranks of the self-employed grow, they eventually become home buyers. Lenders tend to hold these types of buyers to a higher financial standard than other home buyers. So, here are a few mortgage tips to help you when you feel like buying a Lake Havasu home, especially one in our very hot seller’s market.
Mortgage Tips for the Self-Employed Buyer
Save Your Financial Documents
Inconsistencies in income sits at or near the top of a lender’s list of concerns when it comes to approving a mortgage. When you are self-employed, your income fluctuates. So you need to show a longer period of income to give a more accurate picture. Plus, self-employed individuals try to take advantage of any legal tax write-offs as possible. Unfortunately, this lowers your reported income. Keeping records of your profit and loss statements, bank statements, and paid invoices helps provide a clearer snapshot of your actual income.
The next one of my mortgage tips you need to follow is to save up as much money as possible. For any home buyer, 20% down stops you from paying PMI. But for many people, saving 20% of a $300,000 average home purchase ($60,000) plus the money required for closing costs (around 2% of the purchase price in AZ or $6000 on a $300,000 home) might prove difficult. Yes, many lenders offer plans that allow you to put a lot less down. But that means a high monthly mortgage payment. The more you put down, the better off you’ll be once you take over ownership.
Get Your Credit Right Before You Apply
Finally, lenders want to see a good credit score for most home buyers. But for the self-employed, that’s even more important. For many buyers, lenders require a minimum score of 620 or 640. When looking at self-employed buyers, your odds greatly improve with a score of 700 or more. Pull your credit reports from all three agencies for free by visiting AnnualCreditReport.com. Check for errors (it happens more often than you think). When you find them, file a claim with the appropriate credit reporting agency. Each agency offers its own rules to follow on their website. You also need to decrease your total debt load to under 30% of your income. Get to work on that as soon as possible.
Self-employed people might have a slightly more difficult time getting approval for a mortgage loan, but it’s not impossible. Just follow these helpful mortgage tips and be in your dream home before you know it.