If you are self-employed, you have probably learned that getting a home loan can be difficult. Many self-employed individuals find that they can afford to buy a house, but because of the strict regulations, they have a hard time getting approved for the loan. Luckily, there are some things that you can do to improve your chances of getting home loans even if you are self-employed.
1. Apply For Less Than You Can Afford
Most lenders see self-employed borrowers as a bigger risk than those who have a contracted job. This is why they are generally more apt to lend to a self-employed individual who borrows less than they can afford. If you think you can afford a $2,000-a-month payment, maybe look for a house that will be significantly less than that. This will show that you will have no problem making the payments, even if times get hard.
2. Make A Bigger Down Payment
Another thing to consider is making a bigger down payment. The more equity the bank has in the house, the less likely they are to lose all of their money if you foreclose. This is why the bigger the down payment the more likely you are to get approved for the loan.
3. Be Careful About The Deductions You Take On Your Taxes
Another important thing to consider is how you file your taxes. When the mortgage lender looks at your income, they will use taxes to verify everything. With a contracted employee they will look at W-2s to prove income, but with self-employed persons they take it over the course of a year with the taxes. However, they won't simply take your net income and count that. Instead, they use AGI (adjusted gross income) to determine how much you make.
The problem with this is that many self-employed individuals can deduct a great deal of their expenses from their taxes and save on the amount they pay to government. However, this will poorly reflect on your mortgage. By deducting too much you will lower your AGI, making it look like you can't afford as much as you can.
When you file your taxes for two years prior to applying for the home loan, you should tell your accountant that you are applying for a house. This will change how to file your taxes.
By understanding these things you can improve your chances of being approved for a home loan even while you are self-employed.
Share4 April 2016
When it comes to borrowing cash for a new house or a nice car, how much money do you really need? Although you might be tempted to mortgage yourself to the brim or borrow a little more than you should, the fact of the matter is that everyone has financial limits. My blog discusses the impact of borrowing more than you need, so that you can make smarter decisions with your money. In addition to keeping you out of trouble, this valuable information might also improve your quality of life and protect your financial future. You never know, it could make all the difference.
