Mortgages For Self Employed: A Step-By-Step Guide

Are you a self employed business owner or freelancer? We’ve got you covered with this step-by-step guide to mortgages for self employed individuals.

As someone who is self employed, you probably already know that you’re a rare breed. You’re a risk-taker, an innovator, and a professional can do-ist. You define the phrase “where there’s a will, there’s a way.

Mortgages for self employed business owners are just another kind of mountain you’ll find a way to scale.

Some believe that being self employed makes you “less attractive” to mortgage companies, but we believe it makes you more attractive. Who is a better candidate for the responsibility of a home than a person who always seems to “figure it out?”

So, with that being said, we want to help!

Here is a step-by-step guide to mortgages for self employed professionals, like you.

Pay off debts

A good credit score is the first of many, and possibly one of the most crucial, steps in getting a mortgage. Companies will assume that if you can’t handle loans for school or credit cards, that you won’t be able to handle a loan from them.

If debt is what’s holding your credit score down, start working on paying it off.

A high credit score will boost how attractive you are to mortgage companies, and will lead to a better interest rate, too!

Here are some pro tips on getting rid of debt:

  • Calculate what you owe, altogether. Take all of your debt, and add it up so you have a goal in place. Having an end-goal can make the process of reaching it easier and more effective.
  • If you already stick to a budget, make it tighter. Free up some more money to go towards paying off your debt. It might be tough at first, but in the long run, you’ll be glad you did it.
  • Quit adding to the problem! If you owe a big debt like student loans, don’t put salt in the wound by racking up credit card bills. Live a cash only lifestyle where you only spend what you have available in your checking account. Use the credit cards for emergencies only.
  • Don’t be afraid to ask for help. With the current debt crisis in America, debt counseling agencies are available and ready to help you figure out how you can consolidate and pay off your balances.

Know your worth

How much do you make annually? Is it consistent? If not, why?

These are some questions you need to know the answers to before you even think about researching mortgages for self employed.

Mortgage companies aren’t going to be concerned with the details of your financial situation. They’re only going to look at the numbers as a whole, without the context.

Keep that in mind, and develop a strategy to showcase that you do, in fact, make enough money to have a mortgage.

Need some help figuring out your income? Here are some tips:

  • A lot of self employed people have inconsistent monthly income. Some months yield more than others. Consider the last 24 months of your business’ revenue. Find the average monthly amount, and divide it by two to find out our bi-weekly income.
  • Money management is made easier with tools like QuickBooks, and there is actually a version of the software that is specifically designed for people who are self employed.

Estimate your debt versus income

Your debt to income ratio is uber important when it comes to financing; debt meaning what you owe every month for expenses, and income meaning what’s left as profit.

Let’s say that each month you owe $1500 for your office space, $300 for business tools (software, web apps), and $200 for your work vehicle. That’s $2,000 of “debt” you owe each month.

Now, let’s say that each month your overall intake averages about $6,000.

Your debt to income ratio is 33 percent (2,000 is 33 percent of 6,000).

The lower your debt to income ratio, the better. To mortgage companies, that means you make more than you owe. Which also means you’ll be able to afford your payments with ease.

Keep consistent records

There are so many benefits to staying on top of your finances. For one, your own peace of mind is imperative to a good quality of life and to managing your business effectively.

Mortgages for self employed professionals are easier to apply for (and to qualify for) when there are consistent records with good showings.

Here are some useful tools to help you stay on track with your finances, and record it all:

  • QuickBooks mobile is great for recording expenses on-the-go, like gas or meals during work travel.
  • Speaking of gas mileage, try TripLog for tracking your travel by car.
  • Evernote is a great, overview app where you can keep written notes, take photos of receipts, and store audio or video notes.
  • HoursTracker is a record-keeping app that will help you log hours if you work in a job where you charge an hourly rate.

Consider the options

With every lock, there’s a key, right? Well, with mortgages for self-employed folks, there are options.

Decide which road will take you where you want to be, and go with it.

  • Stated income mortgages are mortgages where the bank allows the applicant to give their income without verification. It’s kind of like an honor code because although the bank won’t verify what the applicant reports, they could potentially ask for the self employed to submit a form (either a 4506 or a 8821) to the IRS.
  • Subprime mortgages are difficult to obtain, but if you can, they can be a winning solution for people with a low credit score. This kind of mortgage is offered to applicants who fail to qualify for a conventional mortgage. Since the recession, there has been a “crisis” with these kinds of mortgages, but as the economy recovers, more banks are being flexible with the option.
  • A no-documentation loan takes low-documentation to a different level by not verifying any income that the applicant reports. This is a good option for people who have a low profit or who show a big loss on their financial records as a business.

All of the above options prove that mortgages for self employed are not just dreams. They can absolutely become your reality.

Extra pro tips

We wanted to take our step-by-step guide one step further and offer you some amazingly helpful tips and tricks. Here’s to mortgages for self employed Americans!

  • Oh, PITI; PITI as in Principal, Interest, Taxes, Insurance. Also known as the “bottom line,” PITI refers to the monthly sum of principal interest, taxes, and insurance. This portion of your mortgage cannot go above $1,000.
  • Fewer write-offs mean more benefits during the application process for a mortgage. When you keep your write offs to a minimum, you’re considered more attractive as a potential loan candidate.
  • A big down payment can make you 100 percent more attractive to a mortgage company. It shows that you’re less of a risk because your investment is larger than a typical one.
  • If you’re ahead of the game and know that you’re ready to apply for a mortgage, try using a mortgage calculator. This way, you’ll have a hard number in mind when you start shopping for the best option.

How we can help with mortgages for self employed

We want you to remember that your job stability is higher than a W-2 employee. If they were to lose their job, they lose everything at the drop of a hat. But as a self employed professional, the chances of you losing all of your clients at once is highly unlikely.

See where we’re going with this? Being self employed is the new black. Own it!

That’s why we believe in trust, communication, and collaboration with every person we work with.

We know you’re entrusting not only an investment, but your future, to us. We take pride in the fact that we place utmost consideration and thoughtfulness into mortgages for self employed professionals like yourself.

Stay the course, and let us help you out.

What our guests are saying

One of the best things about what we do is getting to watch our guests live their dreams. Through working together we believe we can, and will, achieve your goal of being a business owner and a homeowner.

Enough from us, here are some reviews from some of our most valued customers:

“A positive quality and honest insight helped my client receive a loan when other brokers were discouraged.”

“I cannot speak highly enough of the service. I would not hesitate in recommending you to anyone else.”

“I was at ease during the whole process and everything was explained so I always knew what was going on with my loan application. It’s great to work with someone you can trust.”

“We were able to lower our interest rate and pay off all of our debt. It was a real relief to simplify everything into one affordable payment. New Florida made the whole experience smooth and were true professionals.”

Now that you’ve got this handy guide to living and working in the same place (your new home), we’re here to answer any other questions you might come up with.

And remember, mortgages for self employed Americans are within your reach.

Feel free to contact us anytime.

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