3 Tips To Help You Get Approved For A Self-Employed Home Loan
Buying a home is a dream that many people share regardless of their employment status. This includes self-employed individuals. Unfortunately, self-employment can make it difficult to obtain a traditional mortgage loan. Thankfully, many lenders offer home loan products that are specifically geared toward the needs of self-employed individuals. If you are planning to apply for a self-employed home loan, the three tips below can help improve your odds of being approved.
Tip #1: Don't Forget To Pay Yourself
Far too many business owners make the mistake of allowing their personal and business finances to become comingled. This can make it difficult for lenders to determine what is business income and what is your income. This is especially true for individuals who are receiving income through multiple different platforms. To establish clear income levels and improve your chances of being approved for a home loan, you will need to begin by keeping your income separate from any business income. The easiest way to do this is by paying yourself in established increments using a personal checking or savings account. All income that is received by your business should be kept in a separate business account that is not listed on your application for a self-employed home loan.
Tip #2: Avoid Making Business Purchases As A Personal Guarantor
Creditors often require small business owners to be listed as personal guarantors when obtaining business lines of credit. This can be a problem if you are planning to purchase a home in the near future. The reason for this is that any time you personally guarantee a line of credit, this line of credit will be reported on your credit report. Making large purchases or establishing new lines of credit shortly before applying for a home loan can reduce your credit score and increase your debt-to-income ratio. These issues can lead to you being denied the financing you need to purchase your home. Consequently, you should avoid making any new purchases using credit in the months before applying for a loan regardless of whether these purchases are personal or professional in nature.
Tip #3: Be Sure To Deposit Any Cash Savings Into Your Personal Bank Account
When evaluating your home loan application, lenders will often look both at your personal checking and savings accounts. This is especially true when applying for a self-employed home loan. The reason for this is that self-employed individuals tend to have large fluctuations in their income throughout the year. Having significant savings helps to demonstrate to lenders that you will be able to make your monthly mortgage payments even if you experience a slow period in your employment. If you currently have cash savings that are not in your bank account, taking the time to deposit this cash can help to improve your odds of being approved for the home loan you require.
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