When you are self-employed, a home loan is not out of your reach. You just have to know what is required of you in order to obtain one.
What You Need for a Home Loan When Self-Employed
The rules of obtaining self-employed home loans only vary slightly from the normal process. You may need to tackle more obstacles in your quest for a mortgage than others would.
Qualifying for a Home Loan
In order to qualify for a home loan, your income needs to at least be stable. Even if it dips some weeks, lenders want to see that most weeks it is high enough to make you a good candidate.
It helps to have at least two years’ worth of income in whatever field you are self-employed in. This reassures lenders that your career and income are established, something they won’t want to extend a loan to you without.
Depending on the nature of your self-employment you may have a line of business credit. If you do, it should consistently be in good standing before you apply for a self-employed home loan.
Lenders prefer when you have separate accounts for business expenses and personal expenses. This gives them more confidence that you can handle the financial responsibility of a home loan.
Having a cash reserve can also help you qualify for a mortgage. This is especially true for the self-employed because lenders may be concerned about how much and when you get paid. They don’t want to extend a loan to you if you are going to have dry periods where you might not be able to afford the payment. With a cash reserve, lenders know you have other funds you can draw on if necessary.
What’s Easiest to Get?
The easiest way to get a home loan as a self-employed individual is to commit to using it for your full-time residence. Lenders often have additional requirements for those who are seeking a home loan for an investment property or vacation home. The reason for this is that they are taking a greater risk with this type of loan. Lenders would prefer to extend assistance to those who need a primary place to live.
It pays to prepare when applying for a home loan if you are self-employed and plan to stay that way.