If you’ve tried to get a self-employed mortgage in the past, you know meeting the stiff requirements of conventional loans has been an uphill battle. Fortunately there are alternative lending programs now available for freelancers, independent contractors and business owners. But what are the requirements and how can you make sure you’re properly prepared before you apply?
Here’s what you need to know.
The Problem: It’s Difficult to Qualify for a Conventional Loan When You’re Self-Employed
First, let’s review the obstacles you’ll face seeking a conventional loan if you’re self-employed.
Inconsistent income, the lack of a W-2 and no employer to verify wage-earning status, are things that conventional lenders will frown upon. If you apply for a conventional loan as a self-employed individual, typically lenders will slap you with a sky-high rate or simply deny your loan altogether.
In fact, thanks to the tax write-offs that most self-employed workers leverage on their annual returns, even those who bring in a lot of cash will have trouble qualifying for a mortgage.
The Solution: Alternative Lending Programs Provide Options for Self-Employed Mortgages
Fortunately, the days of needing a W-2 to qualify for a mortgage are coming to an end with the growing adoption of bank statement home loans. These loans, put simply, are ideal mortgages for self-employed people, offering them an easy way to show their income and prove their reliability as a borrower.
Getting Started: Self-Employed Mortgage Requirements
If it sounds like a self-employed home loan might be up your alley, here’s what these mortgages generally require:
- A letter from your tax preparer that shows you file your returns as an independent contractor and that validates your business expenses
- 12 to 24 months of personal or business bank statements
- A profit and loss statement for the last two years, if available
- Documentation explaining any large deposits
- A credit score of 620 or above
- Cash or liquid reserves to cover the down payment, closing costs and 3 to 12 months of your mortgage payment, including taxes and insurance
- At least 2 years since a bankruptcy, foreclosure, short sale, deed-in-lieu or other major financial event
Other: Documentation to Help You Qualify for a Self-Employed Mortgage
While there are an estimated 15 million self-employed individuals who can easily verify self-employment with a business license or business formation documents, there is a large unclassified category of independent contractors who receive business income in the form of a 1099. These individuals may need additional documentation such as:
- Your professional license
- 1099s, showing you have been an independent contractor for some time
- A larger sized down payment
- Verification of liquid assets, like a 401K or investments in stocks and bonds
Keep in mind you can always work to improve your credit score if you fear you will be unable to qualify for a bank statement mortgage. Work on paying off your debts — particularly high-interest credit cards — and reduce your total obligations to 30% or less of your total limits. This will boost your score and your chances of approval.
Next Steps: Self-Employed and Looking to Buy a House?
From consultants to hairdressers, any individual in business who provides services to another individual or business can be considered an independent contractor and qualify for a mortgage through an alternative lending program.
The new Bank Statement Mortgage is a quantum leap for the self-employed. If you are one of the millions that have been unable to obtain mortgage financing because of your taxable income, you can now buy your dream home or refinance and tap into your equity to access capital for your needs.
Learn more about self-employed mortgage criteria by downloading our free ebook, The Ultimate Guide for Self-Employed Bank Statement Mortgages, or contact HomeLife Mortgage for more personalized advice.
More Content For You:
Bank Statement Mortgage: Cash-out Refinance
Self-Employed Mortgage: Buy a Home With a Bank Statement Mortgage
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About HomeLife Mortgage
For more than 25 years, HomeLife Mortgage has built a strong reputation in California and Florida as a leading mortgage broker, servicing the needs of borrowers who have been unable to obtain conventional financing. HomeLife Mortgage is at the forefront of non-bank lending offering the next generation of mortgages including Jumbo Non-Prime Loans, Real Estate Investor Loans, Bank Statement Loans, FHA Loans and VA Loans.
