If you think that being self-employed means that there’s no way that you can get a good home, it’s time to definitely think twice about this. You see, if that really were the case people would be without homes that would otherwise deserve them. Remember that a mortgage lender is looking for one thing above all others — your ability to repay the loan. If that means that your money is coming from stable investments and businesses, then so be it. However, you are going to have a work a little harder than someone that is employed by someone else.
This is because the past history of “liar’s loans” or stated income loans, is coming back to haunt the entire industry. Before the mortgage meltdown, a lot of people were able to basically just make up an income and be taken at their signature. Upon later research, the lenders found that people had grossly inflated their incomes in order to get into certain homes that had to be later repossessed by the lender — at a significant loss, of course.
So if you want to get home loans or personal loan, you’re going to have to make sure that you have all of the necessary paperwork.
First and foremost, you need to make sure that you’re looking at your budget clearly. You really, really, really want to make sure that you can afford a new home. This isn’t just the down payment or even the monthly payments on the house. You want to make sure that you have significant savings. It might not seem like the case at first, but the truth is that homeownership is expensive. There’s always something that needs to be repaired and guess what? There’s not going to be a landlord to take care of things for you. This means that you’re going to have to work hard to ensure that little repairs don’t turn into big problems. Yes, it’s hard work but it’s worth it when it comes to having your own home.
So after you look at your budget and make sure that you keep your debts low, you’re going to want to gather up the paperwork. Proof of income and self-employment is the name of the game. In order to be taken seriously, you really want to make sure that you incorporate your business. Yes, it’s technically not necessary to incorporate your business but the truth is that if you don’t incorporate, you’re going to face an uphill battle in being taken seriously. The lender will process your application and they might feel that if you didn’t take the time to register your business properly and treat it like a real business, then you might not take your home seriously, either. Yes, this is an assumption but the lend ahs the power to make those assumptions. Prove them wrong but filing with your state for incorporation. In most states this is actually very cheap and can make it easier to get funding for your company and even discounts from suppliers. It’s just a matter of making sure that you really look through all of your options.
As a side note, the incorporation process also lets you keep your business money and your personal money separate. This can also please a lender knowing that you’re organized. As credit markets cool down, lenders are getting pickier about the applications they receive. So if you really want to float to the top of the stack as a good credit risk, you definitely want to show that you can handle a business on top of owning a home.
Showing tax records and paystubs (if any) is a good thing. If you have your taxes prepared by an accountant, that’s even better — it’s a 3rd party that is sworn to take care of your returns and provide truthful information. Getting a statement from your accountant is definitely a great step in the right direction. This is especially true if you’ve used the same accounting company for years and years. The longer you’ve been in business, the easier it will be to catch a lender’s attention. Generally speaking though, two year’s of financial information is good.
What if you’ve gotten multiple years where money was tight, and now it’s flowing? You might want to wait till your money evens out. Big spikes or big losses can make a lender very nervous, so you don’t want to just jump in unless your financials are solid. Profit and loss statements may also be requested. Some lenders even want to see business plans to make sure that you’re really planning on running a great business for the long run.
Yes, credit is going to be an issue. Don’t be surprised if a lender checks into your business credit as well as you personal credit. This is where incorporation definitely helps. A business that is incorporated can actually get a lot better credit terms than one that is only a sole proprietorship. It’s tempting to just stay that way, but more credit means more buying power and the ability to have longer terms to pay suppliers.
Overall, these tips are going to come in handy when you really want to own your first home. Having everything in order makes your application a lot easier to process, so why not get started today?