In recent years, self-employment has become a common norm. Due to job flexibility, easier working hours and no need for overtime, more people are opting to choose self-employment over traditional 9 to 5 hours. In America alone, there are over 16.2 million self-employed which makes up about 10% of the total workforce. This changing trend of employment has led to an increase in the number of individuals venturing into this field. So, why is it that such a large demographic is kept from purchasing their dream home? This is because many traditional banks and lenders often reject self-employed individuals’ mortgage applications. But this is also changing. The dream of owning your own home is now achievable with mortgage loans for self-employed individuals.
Let’s take a closer look at a checklist of certain documents that you will need to submit in order to increase your chances of mortgage approval.
Checklist for the Self-Employed Individuals:
When you apply for mortgage loans for self-employed individuals, you will be asked to submit certain documents which include your recent tax returns, proof of income, and much more.
Here is a list of documents and requirements you might be asked to fulfil for the mortgage application:
- Tax Returns:
When it comes to applying for mortgage loans for self-employed individuals, you need to show your last 2 years’ tax returns. You might be asked to present tax returns for your business and your personal tax returns. These documents signal to the lender that you are a financially responsible borrower. The tax returns offer proof that you have been diligently filing your taxes. This shows a healthy financial situation which builds confidence in the lender. It gives them insight and allows them to make a sound decision to approve you for the mortgage.
- Repayments of Any Standing Debt:
When you apply for mortgage loans for self-employed individuals, you must disclose any standing debts and monthly repayments. Ideally, you should pay off these debts before applying for a mortgage, but if that’s possible, then it is your financial obligation to inform your lender beforehand. The pending debts include but are not limited to credit card balances, student loans, alimony and others. To strengthen your application, it is a good idea to provide either 24 months of bank statements or 1 year of bank statements along with 2 years of tax returns. This allows a lender to determine your debt-to-income ratio and credit score. At Dream Home Mortgage, you can apply for self-employed mortgage options with high debt-to-income ratios of 57% for FHA loans and 49.9% for conventional loans.
- Down Payment:
A down payment is a certain percentage of your house’s market value that you pay upfront. The standard percentage of down payment for most loan options is 20%, but some lenders in Texas are willing to accept down payments as low as 3% to 5%. With larger down payments, you can eliminate the need for Private Mortgage Insurance (PMI). If you have adequate savings and funds reserved for closing costs and down payments on the house, then you are more likely to secure mortgage loans for self-employed borrowers.
- Asset Declaration:
Most traditional banks, credit unions and mortgage lenders are hesitant to approve mortgage loans for self-employed borrowers. Therefore, to increase your chances of approval, you need to show proof that you have assets that can be used as collateral or to cover your mortgage payments. These can be in the form of savings accounts, real estate properties, retirement funds and investments.
- Business Documents:
If you are a business owner then you might be asked to show your balance which act as snapshot of all your business expenses and requirements. They also show how successful your business is. You might also be asked by the lender to present your most recent profit and loss statements. Therefore, keep them on hand just in case.
- Proof of Additional Resources:
To increase your eligibility for mortgage loans for self-employed borrowers it is good idea to disclose your secondary as well as passive source of income. These can be in the form of alimony, rental properties and social security. This shows to the lenders that you have the means to provide the monthly payments once the mortgage is approved.
- Current Housing Payments:
One of the biggest expenditures made by Americans is their rent. A large portion of your total income goes towards paying your monthly rent therefore, use it to your advantage. Your lender might ask you to show proof of your rental payments or current mortgage. This can in the form of either payment receipts from your landlord or cancelled checks.
Get Approved for Mortgage Loans for Self-Employed at Dream Home Mortgage!
Getting rejected for mortgage loans for being self-employed is a thing of the past. Nowadays, due to the growing number of self-employed individuals, the need for mortgage loans for self-employed borrowers is increasing. You can now easily apply for these mortgage options by submitting the application along with supporting documents as mentioned above. If you are looking for a reliable mortgage broker in Texas, then you should head over to Dream Home Mortgage. With over 25 years of experience and the unwavering determination of Mr. Hussein Panjwani, thousands of families across America have achieved their dream of owning a house. So, what are you waiting for? Book their free 30-minute consultation today!