If you’re self-employed, you might find it harder to get a mortgage than someone employed by someone else. Here, Ottawa Mortgage Services shares what you need to know about mortgages if you’re self-employed:
The Challenges of Getting a Mortgage When Self-Employed
For many people, self-employment is the key to achieving their professional and financial goals. However, when it comes to securing a mortgage, self-employed individuals often face unique challenges.
One of the biggest challenges is proving income stability. Lenders typically like seeing at least two years of consistent income before approving a mortgage. For self-employed borrowers, this can be a tough hurdle to clear.
Another challenge is that self-employed borrowers often have less documentation to show when applying for a mortgage. This is because they may not receive regular pay stubs or W-2 forms. As a result, they may need to provide additional documentation, such as tax returns, to prove their income.
Finally, self-employed borrowers may struggle to qualify for the best mortgage rates and terms. This is because they are often considered higher-risk borrowers. As a result, they may need to pay higher interest rates or put down a larger down payment.
Despite these challenges, self-employed borrowers can still qualify for a mortgage. It may just take a little bit more time and effort to get approved.
How to Increase Your Chances of Getting Approved for a Mortgage as a Self-Employed Applicant
You can do several things to increase your chances of approval for a mortgage as a self-employed applicant.
1. Get Your Financial Documents in Order
When applying for a mortgage, most lenders will want to see proof of your income. This is especially true for self-employed applicants.
Make sure you have your tax returns for the past few years, as well as any other documentation that can prove your income. This may include bank statements, profit and loss statements, and 1099 forms.
2. Have a Large Down Payment
Lenders often view self-employed applicants as higher-risk borrowers. As such, they may require a larger down payment than they would for someone who is employed by someone else.
Ideally, you should aim for a down payment of 20% or more. This will help you avoid having to pay private mortgage insurance (PMI), which is an extra fee that is required when you make a down payment of anything less than 20%.
3. Have a Strong Credit
Your credit score is among the most important factors that lenders will consider when you apply for a mortgage. A higher credit score indicates to lenders that you’re a lower-risk borrower, which can increase your chances of being approved for a loan.
If you’re self-employed, it’s especially important to have strong credit. This is because self-employed applicants are often seen as higher-risk borrowers.
4. Get Pre-Approved for a Mortgage
Getting pre-approved for a mortgage is a good way to show lenders that you’re serious about buying a home. It also gives you a clear idea of how much money you’ll be able to borrow.
When you’re self-employed, it’s a good idea to get pre-approved for a mortgage before starting shopping for a home. This way, you’ll know how much money you’ll be able to borrow and you can avoid looking at homes that are out of your price range.
5. Work with a Mortgage Broker
A mortgage broker can be a valuable resource when you’re self-employed and looking to get approved for a mortgage. Mortgage brokers are experts in the field and they can help you find the best loan products for your situation.
Additionally, mortgage brokers can help you navigate the mortgage process and they can provide guidance on what you need to do to increase your chances of approval for a loan.
If you’re currently self-employed and thinking of buying a home, following these tips can help you improve your chances of being approved for a mortgage.
Self-employed individuals should be aware of a few key things when it comes to mortgages. They will likely need to provide more documentation than a person who is employed by a company, and they may need to get a higher down payment. However, self-employed individuals can still get approved for a mortgage as long as they meet the lender’s requirements. You can consult one of the private lenders in Ottawa to know more about their specific requirements.
Ottawa Mortgage Services is one of the top mortgage brokers in Ottawa that can help you get a step closer to your dream of being a homeowner. Learn how we can help you today!