Challenges Self-Employed Individuals Face When Applying For A Mortgage

While it may not be as easy, self-employed individuals can certainly apply for and receive mortgages

Challenges Self-Employed Individuals Face When Applying For A Mortgage
May 20, 2016

Those who are self-employed may find that completing paperwork for a number of things, including loans and mortgages, is made more difficult by the fact that they often do not have a steady income or pay stubs to prove the income they do have. However, those who enjoy being their own boss can still easily purchase or refinance their homes if they have a good credit score and a way of proving their income.

Prior to the housing crisis, there were a number of different lenders willing to make loans to self-employed individuals without requiring documentation of their income. These loans are very rare now, but fortunately, self-employed individuals can often submit their tax returns as proof of income.

However, most self-employed individuals need more than just their tax returns. That is because many of them write off several business expenses, which leaves their income appearing to be much less than what it truly is. It also does not show any fluctuations in income or the fact that the borrower may be making much more now than they did the year before.

To counter this, many experts suggest that self-employed individuals start preparing their documentation two years prior to when they want to purchase a home. This may mean that they take less tax deductions for those years and create a documentation process for their income. This includes making quarterly profit and loss statements, working with a CPA, and keeping an updated ledger.

Moneytips can help you refinance your existing home loan.

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Jane | 05.20.16 @ 14:20
It probably is more complicated than someone who has W-2's and is an employee. There are so many expenses to take against income to determine if a self-employed individual can handle a mortgage.
STOKES | 05.20.16 @ 14:20
Self-employment seems to have a lot of hurdles. This is good infor for self-employed people to help jump those hurdles.
irene | 05.20.16 @ 14:21
I can see how it would be more difficult for someone in that situation
Erin | 05.20.16 @ 14:21
Wow, planning two years in advance seems like it might be a tough thing to do for a lot of people. My husband has considered becoming an independent contractor a time or two, but so far the cons have outweighed the pros. I guess this is another to add to the list.
Chrisitna | 05.20.16 @ 14:21
Preparing at least a year or two in advance is really important, because you need to use your tax returns to show proof of income. Working with a tax advisor really helped narrow down what we needed to do to get the most out of a loan.
Leah | 05.20.16 @ 14:23
The hoops you have to jump through to get a house is insane. But the hoops someone who is self employed has to go through is insane. We could avoid some many homeless situations if buying a home was less complicated
Jonathan | 05.20.16 @ 14:23
Self employed people really get screwed in alot of ways.
Nancy | 05.20.16 @ 14:23
I never thought about this. I guess it makes sense. Most or all of their documentation is self provided.
Paul Carson
Loan Officer in Conshohocken, PA | 05.26.16 @ 01:43
There is no such thing as getting your mortgage financing plan in place TOO early when you are self employed/ Be sure to work with a loan officer who is well versed about the intricacies of working with self employed clients..
$commenter.renderDisplayableName() | 11.24.20 @ 23:56