Updated: Feb 4, 2020
As the gig economy continues to grow, the number of self-employed individuals only stands to increase well beyond the 16 million self-employed workers currently in the United States. But even though working for yourself is becoming more common, it still presents certain challenges when obtaining a mortgage because of current underwriting standards. As you work with your NextHome Titletown agent to land your dream home, you should be aware of what mistakes to avoid.
According to Realtor.com, be sure to avoid these three critical errors that self-employed individuals commonly make when applying for a mortgage:
Inconsistent income. As a self-employed person, you’ll be required to submit at least two years of federal tax returns. This proves to your lender that your business provides the stability necessary to pay your mortgage each month—which is why having steady income is so important. Obviously, minor fluctuations are fine—but in order to show your lender that you’re a qualified candidate for a mortgage, you should be able to prove your business draws a stable or steadily increasing revenue stream.
Carrying business purchases on your personal credit cards. Obviously, there are costs associated with running a business. If instead of separating your finances and you pay for those expenses on your personal credit cards — and carry the associated debt — this can impact your debt-to-credit ratio, making it harder to secure a mortgage. Carrying high credit card balances can also negatively impact your credit score, which will further hurt the likelihood of getting approved by lenders.
Not having your paperwork straight. There is a ton of paperwork that goes along with securing a mortgage, and there is even more when you’re self-employed. In addition to your tax returns, you may also need to provide a profit-and-loss statement as well as additional financial documentation for your business. Before you apply for a mortgage, make sure you have all of your financial paperwork, both business and personal, ready to pass along to your lender.
As a self-employed individual, you can absolutely secure a mortgage and buy the house of your dreams, and at NextHome Titletown, we are here to help! Let our experienced agents help you land your next home in Boston or wherever you’re looking throughout the area. We can help you understand any potential roadblocks that you might face and mistakes you need to avoid in order to make the process as simple and straightforward as possible.