Nearly 30% of Americans are self-employed or are managing their own business. With people shifting to this line of work, you would assume that mortgage lenders are finding ways to accommodate entrepreneurs and make the process easier. Unfortunately, this isn’t the case. While it isn’t impossible for business owners and entrepreneurs to get a mortgage, it isn’t easy either.

Why Is It Hard For Entrepreneurs to Get a Mortgage?

Many traditional lenders aren’t keeping up with the times, and they remain iffy about approving mortgages for entrepreneurs and small business owners. They’ll still treat your application as that of a salaried employee and will look at the following considerations: income, credit, down payment, and the property itself. When you’re self-employed, the first item on that list might be a problem. Even if you have strong credit, an inconsistent income and lack of W-2 forms can prevent you from qualifying for a mortgage.

Entrepreneurs are generally entitled to more tax credits and deductions compared to regular employees. If you’re working from home, you’ll even get back some of your household expenses. The problem is, you qualify for a mortgage based on your taxable income. While claiming your tax credits and deductions is good to minimize what’s taken out of your income, it might be a problem for lenders when your tax return shows little income. You might end up not being qualified for a mortgage, and you’ll be one step farther from getting your dream home.

The key here is to talk to your accountant if you’ve decided to own a home. Letting your accountant know that you’re interested in buying a home will allow them to help you figure out how much of your income you’re going to show on your tax returns.

What Can I Do to Qualify for a Mortgage?

The first step to qualifying for a mortgage is to get organized and plan ahead. By the time you’ve decided on applying for a mortgage, consider doing the following:

  • Save for your down payment
  • Have at least 6 months worth of money to cover operating and living costs
  • Pay your bills on time and get your credit score up

Once you have enough to show that you’re capable of paying off your loan, it’s time to get your documents ready.

Proof of Employment

When applying for any kind of loan, lenders will have to verify your employment. Regular employees can usually provide proof of employment letter, but for self-employed individuals, this works a bit differently. In this case, you are your own boss and simply telling them that you have your own business won’t suffice.

Don’t worry, because there are several documents you can submit that can help verify your employment:

  • A state or business license showing that you work in a regulated profession (doctors, lawyers, engineers, accountants)
  • A current bond insurance statement
  • An official letter from a client or business you’ve previously worked with
  • A letter from a tax firm or licensed accountant

Make sure that any documents you provide show that you’ve been self-employed for at least 2 years; this will prove that your profession is somewhat stable.

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Proof of Income

This is the most critical step that will make or break your mortgage application. Lenders want to see a consistent track record of your income in the past 2 years. With this in mind, provide the following documents:

  • Business tax returns
  • Personal tax returns
  • If available, provide other forms of income documentation

Business and Personal Assets

Keeping your personal and business finances separate is an important step to qualifying for a mortgage. The best way to do this is to have a separate credit or debit card and bank account for your business. Any receipts you get using your business debit or credit card should be stored separately from personal receipts. To keep things organized, keep your receipts in separate folders in a file cabinet, and for digital receipts, separate folders in your email.

Go Mortgage Shopping

Once you have all the required documents, do your research and find a good mortgage company to file your application at. Ask the people around you who are in the same boat: small business owners and self-employed individuals who are currently paying off their mortgages. You can also check online to see which lenders are more eager to help self-employed individuals achieve their dream to become a homeowner. Once you’ve found the right company for you, it’s time to file your application and be on your way to getting your dream home!

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