Show Me the Money
If you stay organized and provide your mortgage company with the information they need, you’ll seem like less of a risk to mortgage companies.
When buying a home, underwriters like to see proof of at least two years of steady, self-employed income to prove your business will be strong enough to consistently cover your mortgage payments. They’ll start by analyzing the previous two years’ tax returns, and using them to calculate a viable monthly income. This number – which is your income before taxes from both years, divided by 24 – is what they’ll use to make any decisions about your home loan. This means that, even if your business is making consistent money now, the past two years’ success could play a large role in your eligibility.
To ensure your tax forms’ validity, mortgage lenders are required to get them directly from the IRS, which means more paperwork for you. Specifically, you’ll need to fill out the 4506-T IRS form, which gives your lender permission to obtain these forms.
Providing your mortgage lender with solid references is another thing that will work to your advantage. Talk to anyone who can vouch for your financial stability – think accountants, financial advisors and the like. If two years of tax returns isn’t enough information to prove your business to your lender, they might also ask for additional paperwork or licensing. Anything you can provide them to prove your financial prowess will help!
Clean Up Your Finances
To make your case as sound as possible, it’s important to make sure all of your other financial ducks are in a row. A solid credit score (we’re talking 640+) is always important when applying for a mortgage, but even more so if you’re self-employed. A high credit score also reflects how well you handle money, which makes you look like a bright, shiny, ideal mortgage candidate. If your credit score isn’t in the shape you’d like it to be, check out online tools like Quizzle to get back on track.
You’ll also want to maximize your down payment. By putting down at least 20%, you won’t have to pay monthly mortgage insurance, which will bring your monthly payment down. Also, look for properties that don’t have extra fees for things like homeowners associations or maintenance. The less you have to pay each month, the more financial wiggle room you have.
Have you gone through this process before? Share your experience in the comments section!
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