Posted by John Doe
The mortgage approval process can be tricky for anyone, but it is especially difficult if you are self-employed. If you are self-employed and looking to obtain a mortgage, there are ways you can succeed with your application. Here are some steps to help self-employed individuals acquire mortgages.
Why is it more difficult for self-employed individuals to get approved for mortgages?
The mortgage process is different if you are a self-employed individual. You will be expected to provide more documentation, and qualifying can be challenging.
The first reason that this process is so tricky is that your income is more complicated than salaried workers. There is no primary income or employer to verify the information, so the self-employed borrower must provide proof that their business exists and that they receive a steady income.
If you’re a self-employed worker, you know how often your income can fluctuate; thus, proving that it is stable can be extra challenging. Plus, as a self-employed worker, mortgage lenders see you as a higher risk. Because of this reason, the criteria and application process may be more rigorous than usual, and you’ll have to have a strong financial profile to show that you’re not a risk.
How to Boost Your Mortgage Application
Ensure Your Credit is High Enough
In general, mortgage lenders require you to have a credit score of 620 or higher. Even though you could potentially qualify for a mortgage at a score that low, you are unlikely to be approved unless you can get it much higher.
If you can’t prove a consistent income, then having a high credit score (of 700 or more) is your best bet. Any self-employed borrower must often check their credit scores to discover any errors in the report or make sure they keep their score up. To monitor your score without your credit being affected, you can use an app like Credit Karma.
Provide the Necessary Documentation
If you are a self-employed borrower, you need to ensure your documentation is in order. The requirements are different for the self-employed, so it’s imperative to provide all the needed paperwork. Look into every piece of documentation that you need, and do not leave anything out. Double-check the requirements and make sure you have fulfilled them.
Put Down a Larger Down Payment
The down payment is a crucial factor in whether your mortgage will get approved. While typical salaried borrowers will likely get approved with a down payment of 5%, the self-employed borrower will have to put down 20% to increase their chances of approval. A larger down payment will compensate for the income risk.
Stash Away Cash Reserves
A large down payment helps, and so can a significant cash reserve. If you have money in an emergency cash fund, then lenders know that you can still make your monthly mortgage payment.
Pay More for Your Mortgage
Since self-employed borrowers are viewed as high-risk, you will have a better chance of getting approved if you pay more for your mortgage. By doing so at a slightly higher interest rate, you will be a more attractive candidate. Plus, you could potentially refinance with an excellent payment history at a lower rate in the future.
Pay Down all Your Consumer Debt
The fewer monthly payments you have within the mortgage application process, the more likely it is you can make your payments. For instance, by paying off your car loans and credit cards, you can apply and qualify for a higher loan due to your high cash flow.
Create a Self-Employment Track Record
If you can get a record of your self-employment history, then lenders will be more inclined to take a chance on you. To track your self-employment record, provide a history of at least two years. However, if interest rates are low, you need to apply for a mortgage right away, even if your self-employment track record isn’t quite as long.
A Quick Guide on Improving Your Chances of Getting Approved
If you follow these guidelines, then you will be well on your way to having your mortgage application approved:
- Register your business and license it
- Reduce your debt load and tax deductions
- Keep business and personal accounts separate
- Maintain good records and keep track of them properly
- Put down a larger down payment
- Work with a mortgage company
Obtaining a Mortgage When You’re Self-Employed is Possible
Even though getting approved for a mortgage when you’re self-employed can be challenging, it is definitely possible. If you take the extra time to enhance other aspects of your application, you will likely obtain one.
Choosing Mortgages Mortgages
To learn more about how you can qualify for a mortgage, even as a self-employed individual, contact Mortgages Mortgages today. We have the necessary resources that will provide you with everything you need to secure your dream home. Since the housing market in Ontario can be challenging to navigate, we provide our customers with various tools and knowledge so that you can fully understand the mortgage and lending process.
We have created a resource centre so that anyone can have information about mortgages at their disposal. Our site will be your guide and give you an advantage when you put together a mortgage application as a self-employed individual.
For more information about the mortgage application process in general, be sure to get in touch with our knowledgeable team at Mortgages Mortgages today. Give us a call at 866-417-8805 or fill out the contact form on our website.