Tips for Securing Mortgage Loans for Self-Employed Individuals
Blog Summary: Securing a mortgage when you're self-employed takes planning, but it’s possible with the right approach. Organize finances, explore alternative income documentation, and work with a lender who understands self-employed needs.
-Gather clear financial documentation
-Use bank statements, 1099s, or (Profit & Loss) P&Ls
-Understand how lenders calculate income
-Strengthen your credit profile
-Separate business/personal finances
-Choose a lender experienced with self-employed borrowers
Mortgage loans for self-employed individuals can be more complex than traditional financing. After all, self-employed borrowers must go the extra mile to prove their income and financial stability. However, with the right strategy and lender, you can overcome common hurdles and successfully finance a primary residence, second home or investment property.
At Myers Capital, we know it can be challenging to get a mortgage loan if you’re self-employed. That’s why we specialize in helping self-employed borrowers qualify through alternative income documentation methods and flexible underwriting. In this blog, we’re sharing our top tips for securing mortgage loans for self-employed individuals.
Keep reading to learn how we help freelancers, sole proprietors, and business owners find a place to call home.
Organize Your Financial Documentation
Before you begin, ensure you know the answer to the question “What paperwork do you need for a mortgage?” Documentation plays a critical role in qualifying for a home loan.
Typically, traditional mortgage lenders asked for the following:
-Two years of personal and business tax returns
-Year-to-date profit and loss statements
-Business bank statements
-1099s (if applicable)
-CPA letters verifying business ownership
At Myers Capital, we offer flexible options beyond traditional documentation.
Here are a few other options for self-employed individuals:
-Bank Statement Loans: Use 12 to 24 months of business or personal bank statements to verify income. Tax returns are not required.
-1099 Mortgage Loans: Ideal for independent contractors who receive 1099 income.
-Profit and Loss Statement Loans: Qualify using verified P&L statements instead of tax filings
These options are great for the self-employed because they reflect your real income more accurately.
Understand How Income is Calculated
How do you calculate self-employed income for mortgage loans? Do mortgage lenders use gross or net income for self-employed borrowers?
The answer to both questions is that it depends on your documentation.
Traditional lenders typically use net income from your tax returns. With bank statement or P&L-based loans, you can use gross deposits or operating income offset by a predetermined expense ratio. This alternate documentation can present an accurate picture of your earnings. This can significantly improve your loan eligibility and buying power.
Build a Strong Credit Profile
A high credit score can boost your chances of approval and help you lock in better rates.
To prepare:
-Check your credit report and correct any errors
-Pay down high credit card balances
-Avoid taking on new debt before applying
Will a Business Loan Affect Getting a Mortgage?
A business loan can affect qualifying for a mortgage, but don’t assume it will affect it negatively. Lenders will generally assess your full debt-to-income ratio. Be prepared to explain any business loans and how they impact your monthly cash flow.
Separate Business and Personal Finances
Keeping your personal and business finances in separate accounts shows lenders that you are organized. It also makes it much easier to document your income and expenses.
Separation and organization are especially important if you're using bank statement loans or P&L statements. In such cases, cash flow must be clearly defined. Having clean financial records helps underwriters trust the numbers you provide. Ultimately, that can speed up the approval process.
Consider a Larger Down Payment
Making a larger down payment can sometimes help offset risk in the eyes of the lender. As a bonus, it might reduce your monthly mortgage payments and increase your loan approval odds. A great mortgage company will help you determine the optimal loan-to-value ratio.
If you can’t afford a larger down payment, that doesn’t mean you don’t have a chance. Always prioritize a down payment strategy that aligns with your financial goals.
Work with a Lender Who Specializes in Self-Employed Borrowers
Traditional banks may reject borrowers who don’t meet rigid documentation standards. But at Myers Capital, we offer flexible loan programs specifically designed for business owners, entrepreneurs, and freelancers. We’re proud to provide the tools self-employed borrowers need to succeed.
Ready to take the next step? Learn more about our mortgage loan options as a self-employed borrower. Contact us for details.
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