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July
29

Self-Employed Mortgage Process - Margaret Rudd & Associates

Being your own boss and building your own business is one of the most satisfying things you can ever achieve. When the long hours and hard work pay off, you are most likely going to want to invest the spoils of your labor into one of the many fabulous Southport homes for sale. While you're no doubt eager to start reviewing listings, the first thing you should take care of is securing mortgage pre-approval. For the self-employed, this critical approval is easier when you take the following steps.  

  1. Document Your Income
    It's crucial to document your income and establish that you have sufficient resources to make mortgage payments. To do this, you'll want to provide at least two years of tax returns. It's also a good idea to prepare a profit/loss statements since the lender may ask for this. Further, if you have been self-employed for a few years, you can use your income records and profit/loss statements to establish patterns in your business profile.

    Conversely, if you have been self-employed for less than two years, you can provide one year of W-2s if you worked in the same field as your current enterprise. You should note that when you do this, it's essential that you can show the same amount or greater income from your business when it's compared to the W-2. You should also prepare a quarterly statement for your asset accounts, including all bank accounts, CDs, IRAs, stocks, etc.

  2. Stabilize Your Expenses
    Lenders want to see more than just stable income. They want to see that you're spending your money wisely. As with all mortgage applications, you will want to pay your debts down and avoid applying for new credit before you purchase your home. Lenders will look closely at your debt-to-income ratio, and you'll want to keep this at 36% or less of your gross monthly income.

  3. Correct Your Credit
    You should clear up any problems with your credit report before you apply for a loan. Making sure that your report is error-free and accurate is crucial. It can take months to remove inaccurate information, so you should start this process long before you intend to apply for a mortgage.

    If you're like many self-employed business owners, there's a good chance that you also have business expenses on your personal credit cards. If this is the case, you should apply for business cards and transfer those debts away from your personal cards because carrying a balance can lower your credit score. Similarly, don't close accounts as this lowers the average age of your accounts, which can take points away from your score.

  4. Understand the Income Calculation
    Lenders calculate the income of self-employed applicants differently than for those who collect a W-2. Rather than using gross income, lenders use taxable income as the baseline for self-employed borrowers. To this, they add back deductions such as depreciation. They also have the option to make subtractions, such as a windfall project that was a one-time source of revenue. Unless you can document that the revenue is ongoing and steady, the lender may deduct it when they calculate your net income.

Our REALTORS® are happy to help self-employed clients throughout Brunswick County find the homes of their dreams. Contact us to learn more about our services and the steps we take to help business owners and entrepreneurs realize their real estate goals.