Factors that affect interest rates for self-employed home loans
- Credit score: Your credit score plays a significant role in the interest rate you’ll receive on a home loan. A higher credit score typically results in a lower interest rate, while a lower credit score can result in a higher interest rate.
- Income: Self-employed individuals often have more variability in their income than traditional employees, which can make it challenging to determine their ability to repay a loan. Lenders may look at your income over the past few years to get a sense of your stability and may require additional documentation, such as bank statements or tax returns.
- Type of loan: The type of loan you choose can also affect the interest rate you receive. For example, a fixed-rate loan typically has a higher interest rate than an adjustable-rate loan. However, a fixed-rate loan provides stability and predictability, while an adjustable-rate loan can offer lower initial payments.
- Down payment: The size of your down payment can also impact your interest rate. A larger down payment can help you qualify for a lower interest rate since you’re borrowing less money.
What interest rates can self-employed individuals expect?
Interest rates for self-employed home loans can vary widely based on the factors mentioned above. Generally, self-employed individuals can expect to pay interest rates that are comparable to those for traditional employees. However, they may face higher rates if they have a lower credit score or if they choose a fixed-rate loan.
According to a recent report by the Mortgage Bankers Association, the average interest rate for a 30-year fixed-rate mortgage for self-employed individuals was 3.40% in the first quarter of 2021. This is slightly higher than the average interest rate for traditional employees, which was 3.32%.
It’s essential to shop around and compare rates from multiple lenders to find the best interest rate for your specific situation. Keep in mind that interest rates can change frequently, so it’s a good idea to stay up-to-date on current rates and consider locking in a rate if you’re happy with the terms.