Why it can be harder
Self-employed individuals can face more hurdles when it comes to getting approved for a home loan because they typically have more complex financial situations than traditionally employed individuals. Lenders need to see that you have a stable income and financial history to ensure that you’re a low-risk borrower. However, self-employed individuals may have irregular income, which can make it harder to prove financial stability. In addition, self-employed individuals may have more deductions and business expenses that can lower their taxable income, making it seem like they earn less than they actually do.
What you can do
If you’re self-employed and looking to get approved for a home loan, there are several things you can do to increase your chances of approval:
- Keep accurate and detailed financial records: Make sure to keep accurate and detailed records of your income, expenses, and business operations. This can include bank statements, tax returns, profit and loss statements, and other financial documentation.
- Build a strong credit history: Your credit score and credit history are important factors in determining your eligibility for a home loan. Make sure to pay your bills on time, keep your credit card balances low, and dispute any errors or inaccuracies on your credit report.
- Work with a lender who specializes in self-employed home loans: Some lenders specialize in working with self-employed individuals and can offer more flexible lending options. These lenders may also have more experience working with complex financial situations and can provide guidance on the documentation you’ll need to provide.
- Be prepared to provide additional documentation: As we mentioned earlier, self-employed individuals typically need to provide more documentation than traditionally employed individuals. Be prepared to provide tax returns, profit and loss statements, bank statements, and other financial documents.
- Consider increasing your down payment: Increasing your down payment can help reduce the lender’s risk and increase your chances of approval. It can also help lower your monthly mortgage payments.