It’s quite an exhilarating experience to be your boss. You get to control your own time and do things your way. However, it’s an entirely different playing field when it comes to loans. The mortgage application process can be far too diverse for those who are self- employed.
For most people, the only way they can own a house is by applying for a mortgage. We’ve seen an exponential growth when it comes to the number of self-employed workers in recent years. But, the fact remains that they need to take a few more extra steps to apply for a mortgage.
The good news is that there are ways to help you avoid several mistakes along the way. First, you need to understand what these issues may be. Here are a few problems you need to be careful of if you want to apply for a mortgage in the future.
Your income is high but isn’t stable
As with most homebuyers, lenders will often check your income to see just how much mortgage you’ll be able to afford. As a self-employed applicant, you should be able to show that you have a steady flow of income without any massive fluctuations. Any inconsistency with your income that can affect your mortgage payment can put your application at risk.
To help prove that your income is stable enough to carry a loan, you need to provide at least 24 months of federal tax returns. They’ll be lenient with a few minor income fluctuations now and then. But, you need to prove that your business is making a steady income each year.
Both your personal and business charges are on your credit card
Same with other borrowers in Kansas City looking for new homes for sale, you need to have a good credit standing to qualify for a loan. The ideal score is 850. But, all scores above 759 means that you’ve shown effort in staying on top of your investment. However, using personal credit cards for business expenses can affect your credit score. That’s why experts suggest having a separate bank account for your finances and your business.
You haven’t fixed all the necessary paperwork yet
Apart from showing documents that’ll prove your income, lenders would also want to see your savings as well as your other financial assets. Doing so ensures that you’ll still have a comfortable life even though you’re already managing a mortgage each month.
A few of the necessary paperwork that they’ll ask you is a quarterly statement of all your asset accounts and your other latest real estate holdings. Also, they’ll check your residential history for the past 24 months as well as your landlord contact information.
Getting a mortgage is a tricky transaction for self-employed individuals. That’s why it’s best to learn all the necessary steps before you apply for a mortgage. Spend time to contemplate if you’re financially prepared to take on a whole new financial responsibility. If you feel like you’re ready and have a stable source of income, then it’s time to start looking for home options.