If you are among those individuals who find it more advantageous to be self-employed, you probably have thought of owning a more comfortable home. After all, you are likely to spend a lot of time at home and you want to make sure that it has all the things you need to keep everything convenient for you. However, at the moment, it is likely that you cannot afford to pay the full amount of your dream house. In this case, getting a mortgage is, perhaps, the most viable option to finance the property you have been dreaming all along.
While getting a mortgage is easier and cheaper for individuals who are W2 employees, the same thing cannot be said for those who are self-employed. Regardless if you maintain an enviably good credit and sufficient assets, you will find that even some of the best mortgage companies will require you to supply them with different documents like tax returns and quarterly profit-and-loss statement for them to prove that you have the capability to make mortgage payments later on. However, you should not be discouraged by all these. If you know for yourself that you are truly capable of making payments, you can do some of the tips below to make you an attractive mortgage candidate.
Pay off your debts first
While you might want to focus on saving money for a down payment for your home, this is not actually a sound start . A better approach is to eliminate most, if not all, your debts, including credit cards and other high-interest consumer debts, with the extra cash you have. Why? Having a debt limits your ability to properly save and limits the amount of money you can borrow. So if you have fewer debts, you will be able to have more cash flow, which means lenders will be able to see that you are capable of paying a mortgage.
Maintain a good credit
All borrowers today need to have a good credit. And because most lenders consider self-employment income poses more risks than regular pay checks, having a high credit score can significantly help in making you an attractive candidate for mortgage. Hence, request for a copy of your credit history and score. Make sure that everything is accurate. If you find something inconsistent, contact the credit company to clear things up before you apply for a mortgage. It will also be wise if you prioritize paying your debts on time and in full amount to make sure that they will not tarnish your records.
Provide a sizeable down payment
The higher equity you have in a home, the lesser the chances for you to walk away from it, especially if you encounter a financial trouble. Hence, if you put a huge amount of down payment on your upfront purchase, the lender will view you as less of a risk.
Boost your cash reserves
Aside from offering a large down payment, having a lot of cash in your emergency fund will let lenders know that even if you encounter financial troubles in your business, you will be able to keep up in your monthly payments. The rule about how much cash reserve you need to have in order to secure mortgage depends on lender to lender and may also vary on the mortgage product you will procure. Hence, make sure that you have enough to protect yourself in case of emergency.
Be willing to supply lenders with documentation
When meeting with a mortgage lender, make sure that you have all the necessary documents to prove you ability to pay. Providing a document of your full income through the last two years’ tax returns, profit-and-loss statement, document of other income-generating investments, balance sheets and the like will greatly increase your chances of securing a mortgage.
Financial Wise is a UK-based company that boasts excellent and qualified mortgage advisors west lothian residents can trust to provide sound solutions for their financial woes. The article that appears above was penned by one of the company’s regular contributors.