You’ve built your own business from the ground up. It’s one of the many things you consider your pride and joy. You often dream of looking out of your office window, at your yard, and your home. But are you really prepared for home ownership? Many self-employed individuals look at home ownership as a way to avoid putting money in their landlords’ pockets and instead putting it toward building a mortgage and in turn, building equity in their own place
But before you take the plunge, it’s important to understand how home loans for the self employed work. Before you choose to buy a home, consider the following:
Your Income Must Be Consistent
Being able to pay your mortgage on time isn’t just a sign of financial stability. It’s the law. A mortgage lender can initiate the foreclosure process in as short as the time frame as a single missed payment or two, so it’s definitely not something you want to make a habit of. Even if you’re thinking about applying for home loans for the self employed, it’s important that you have consistent and reliable income coming in and that you have a way to document this, by way of your bank statements, for example.
You want to be able to demonstrate to lenders that your finances are reliable and that you have a constant stream of ongoing income coming in. If you’ve just switched jobs or had a drop in income, it may be worth waiting a bit before you elect to purchase a home, since these can be red flags when you’re trying to get a home loan.
Check Your Credit
Your credit score and credit history all affect your ability to buy a home. Having good credit means you’ll pay less in interest, even if you pursue home loans for the self employed. You may also have a lesser down payment to put down on your home if your credit is better. Average credit doesn’t mean you’re out of luck, but it does mean you may pay more. Ideally, you’ll want to work on your credit to get it as good as it can be before you move forward with buying a home.
A few percentage points may not seem like they make much of a difference, but over the course of a 15, 20 or 30 year mortgage, they definitely can add up to thousands of dollars, so do what you can to improve your credit if it’s not as good as it could be.
Can You Properly Care for the Home?
Home ownership means more than just paying your mortgage. You’ll need to do regular maintenance as well, which can include lawn and garden care, repairs, changing out filters, spraying for bugs and more. Unless you have the extra funds to pay a specialist to handle these things for you, they all fall on you. If you’re swamped with work and don’t have time (which can be a great thing), or you just don’t want to deal with the hassle of upkeep, you may be better suited for renting.
Getting Started with Home Loans for the Self Employed
If you’ve read this far and you’re ready to put in the time, money and effort that comes along with home ownership, then congratulations, you’ve taken the first step forward with confidence. The next step is finding out what your options are in terms of home loans. And although there are not specifically home loans for the self employed set aside, you may be able to get a lower interest rate if you’re able to use your self-employed income to make a larger down payment on the home, or if your credit is good and your income stable and regular.
All of these things show lenders that you are not only responsible, but a safer bet to lend to than someone with poor credit, flaky income and other red flags. If you’re in a stable position to buy a home and you’re planning on staying where you are for awhile, home ownership could be the right choice for you.
With that being said, it’s a big step and not one that you want to take lightly. To learn more about what loans are available for the self-employed and what options you have available to you, give us a call. We’ve worked with thousands of self employed individuals and understand your unique needs in getting financing for your home purchase.