Freelancers and self-employed individuals experience challenges not only in finding steady income sources but also in acquiring home loans. Unfortunately, even those with steady businesses and clients failed to secure their own homes for the same reason: they do not have the W-2 tax form that shows the amount of your federal and state taxes for the year.
If you are one of these people, do not lose hope. More mortgage lenders nowadays are opening themselves to cater to this growing target market. If you plan to secure financing for your dream home soon and hope to get mortgage loan pre-approval in Ottawa, here are the steps you need to take to ensure your mortgage application approval:
Step 1: Determine Your Lender’s Requirements
Every lender has different requirements, but one thing is for sure: they want borrowers who can guarantee they can pay back what they loan. That means what they look for in individuals is a stable source of income that can assure them that these people can pay.
Lenders ultimately look at employment or income records of at least two years. When you can show that you have been getting a steady income source for the past two years, they might be able to see that you have an excellent financial health standing. Therefore, consider you for a mortgage application approval. Make sure to secure sound financial records before you attempt to apply.
Step 2: Increase Your Credit Score
Another way you can prove your financial capability is by improving your credit score. One’s credit score determines whether one could qualify for a loan or not. While requirements for each mortgage lender differ, they usually follow the 660 to 724 credit score requirement. The credit score informs the lender about the payment potentials of individuals. The higher their credit score is, the more likely they could get approved.
You can achieve that by paying your bills on time, clearing off your debts, and keeping your credit card balance under 30 percent of its credit limit. Try not to apply for another credit card before you apply for a mortgage too.
Step 3: Keep Your Debt-to-Income Ratio Low
The debt-to-income ratio tells how much income you generate every month goes to servicing debt. In short, it measures the amount of debt you have compared to your overall income. By looking at this, your lender can gauge whether you can afford to have another loan to pay. When you keep your DTI ratio low, they realize that you can comfortably pay for a monthly mortgage payment.
Step 4: Aim for a Higher Down Payment
If you can pay for a higher down payment for your dream home, you could catch loan providers’ attention and make yourself look less risky as a borrower. Furthermore, you can get a lower interest rate should you provide a higher down payment than what they are asking. If you can, aim for at least 20 percent of the total amount of the house you are eyeing. It would be a win-win situation for you.
Those are just a few of the tips you can do to make yourself look capable of paying your mortgage fees even without the W-2 document. Life as a self-employed and freelancing professional is frustrating enough, but there are ways you can turn the situation around. While waiting for a much lenient way to borrow money from lenders, consider saving for your down payment and keeping good financial health.
Make sure to find a mortgage agent who can help you find the best mortgage loan pre-approval in Ottawa that fits your unique situation. Ottawa Mortgage Services can assist you in finding lenders that let self-employed Canadians with good records qualify for the lowest mortgage rates. Contact us to learn how we can help.