How to Buy a Home as a Self Employed Individual

Posted by Jennifer Dollar on Wednesday, May 7th, 2014 at 12:47pm

Being self employed can pose some level of risk to a lender. If you are planning to buy a home as a self employed borrower, you'll need to do some extra work to alleviate those concerns of the lender. The good news is that you can still get a loan. You'll just have to prove to the lender, like everyone else has to, that you can afford to make your mortgage payments. When you do this, you'll be able to find a loan that's right for your needs.

Prove Your Income

As a self employed individual, proving your income is the most important part of this process. You may not have accurate records or any records at all. Your income may change drastically from one time to the next. Or, you may not be sure you want to state just how much you earn. In short, mortgage lenders need to know how much you are making to know how much they can lend to you and still remain safe.

To prove your income, you'll first need to do so with tax returns. This is by far the most accurate method for mortgage lenders to use to verify the income of the borrower. You cannot use a stated income, in most cases, and get the best terms for the loan. 

Realize that the loan amount you receive is likely to be based on your self employed income from the last two years. This may make things more difficult for some self employed individuals. If your income has changed significantly one year to the next, this could impact your lender's ability to lend to you. In short, mortgage lenders need to see that your income is not just there, but that it is stable. Providing two years' worth of tax returns is almost always necessary.

It is important to know that the laws for self employed individuals continue to change. You may find it harder to get a loan today from a mortgage lender than you did just a few years ago. The fact is, lenders want to be sure you have the means to repay your loan so there is less risk of default. Working with a trusted mortgage lender is an important first step in this process.

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