One of the most challenging parts of shopping for a home is getting your finances in order, and this task may be particularly difficult if you’re self-employed. Most lenders tend to operate with the assumption that clients are employees somewhere, so they often ask for things such as W-2 forms that self-employed people may not have, which can make applying for financing a little more complicated but not impossible. Whether you’re looking for a condo, a townhome, or a house for sale in Irvine, CA, these tips can help you successfully get financing as a self-employed person.
Keep Track of Old Records
For people who are regular employees, lenders may just want 6 to 12 months of income documentation, but they usually want a lengthier history for the self-employed. Expect lenders to ask for at least two years of financial history documentation, which may include federal tax returns or bank balances. Lenders like to see stability, so several years of income that remains the same or increases may make you a better prospect.
Pay Attention to Your Credit Score
Lenders care about more than just your income. They want to make sure you’re a reliable person who has a history of paying back your debts. A good credit score is one of the key ways you can make yourself look like a safe bet to lenders. To maintain your credit score, try to always pay bills on time, keep card balances low, and limit applications for new credit.
Reconsider Excessive Tax Write-Offs
When thinking about the terms they can offer you, lenders consider your income after tax deductions, not your total income. Therefore, it may be a bad idea to take an excessive amount of tax write-offs in the year or two before you apply for a mortgage. It might save you a little money during tax season, but it could cost you more when it comes to financing.
Talk to Someone Else About Cosigning
A cosigner isn’t always necessary, but having one can tip the balance toward getting approved for your mortgage. In these circumstances, the bank will take the cosigner’s income into account when looking at your finances. Keep in mind the cosigner will have to pay the debt if you can’t, so it may be difficult to find someone willing to cosign for you. Potential cosigner options include parents, spouses, relatives, and close friends.
Save Up for a Big Down Payment
If you have a situation that has lenders worried, a larger down payment is always a good idea. Making a big down payment reduces the amount of money the lender will be responsible for if you default on the loan, so it may mitigate their concerns. Down payments of around 30 percent may result in better interest rate offers, so if you have the opportunity, take the time to save up.
As a self-employed person, you know how important it is to work with professionals who are honest, reliable, and knowledgeable about their industries. When you’re getting ready to finance your home, you shouldn’t overlook the importance of working with experienced Irvine real estate agents who know the ins and outs of home finance. Call one of our friendly agents today at 714-454-6304.
