This article first appeared on Better.com
If you’re a self-employed home shopper, you’re not alone. Over 15 million Americans are self-employed,1 and many struggle to find financing when they’re ready to buy a house. Our goal is to make it easy. With the right planning and preparation, you can build a clear path to your dream home — even when your income isn’t traditional. See what you can do now to set yourself up for homebuying success.
The earlier you start tracking your income, expenses, and savings, the easier the mortgage process will be. Other borrowers can rely on W-2s to verify their employment history and income. You’ll need to document your own history with several years of tax returns, a list of assets, and a list of debts.
If you have a business expense, make sure you pay from your business account. That way, your expenses won’t impact your personal debt-to-income ratio, a key factor in determining how much you can borrow.
This matters for all buyers, but it’s especially important when you’re self-employed. Lenders will look to your credit score for proof that you’ll be able to pay back the loan. You’ll typically need your score to be at least 600, with better rates available as your score increases.2
You’re already doing it! Keep reading more articles like this one. The more you know about the process, the easier it will be.
We asked one home shopper, Katie, about the challenges she faces as a self-employed buyer.
A. Everyone made it sound super simple. You just go buy a house. No one tells you about all the pieces that have to come together in order to make it happen.
A. Yes. You need to plan ahead and prepare for this. It’s not something you just decide to do one day. Maybe for some people you can do that, but they might have co-signers, inheritance or other things making it possible to do that. The average person, especially self-employed and single, needs to plan ahead.
A. Because I work for myself, it’s not as easy to prove income or to forecast it. Also, I had a lot of debt from my business on my personal credit, so that was a problem. I had to focus on cleaning that up and preparing my taxes a certain way to qualify for a mortgage, even though I earned enough money already. It’s sort of a numbers game and you have to know how to play it.
A. Find the right people who will help you. Know that you will have to take some steps to make this happen, but you can do it as long as you stay committed and clear on your goals. And remember you’re a worthy buyer.
Ready to take the next step toward buying? We’re happy to help. Schedule a call today with a Mortgage Expert from Better Mortgage, the home for your home.