Looking to take advantage of low prices and low interest rates to refinance your home or borrow to upgrade your housing? If you’re self-employed, qualifying for a mortgage is a bit more involved for you than for your W-2ed neighbors.
For you self-employed, here are a few tips to help you get your mortgage application approved:
- Prepare for a detailed analysis of your income by presenting your lender with income tax returns from the last three years.
- Provide evidence substantiating year-to-date income — e.g., profit and loss statements and monthly bank statements on your businesses, securities activity and income property.
- Highlight clients with whom you’ve had long and consistent contracts, along with charts or spreadsheets on your monthly income and expenses for the past couple of years.
- Provide a balance sheet presenting all your assets and long-term liabilities so the lender can judge your wealth as a source of repayment.
- Maintain cash reserves and be able to document the source of the deposits – e.g., an inheritance or simply accumulated wealth and earnings from your occupation.
- Pay off all credit cards and other short-term debt by carrying no balance beyond current monthly charges.
- Be prepared to offer an explanation for any income fluctuations and extraordinary flows of money.
- Apply for your mortgage with a local community bank or credit union since these smaller lenders will take the time to process a mortgage application and have personnel who can make discretionary decisions. It is also important to make sure the lender understands a freelancer’s tax return, since its adjustable gross income (AGI) is very different from taxable income.
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