The Secret Trick Banks Don’t Want You To Know About Mortgages For The Self-Employed

The Secret Trick Banks Don't Want You To Know About Mortgages For The Self-Employed

Are you self-employed and feeling like banks don’t want your business when it comes to finding the right mortgage? That’s because this is a secret that most major lenders would instead not advertise – they make it harder for the self-employed to get mortgages. Lucky for you, we know the inside scoop! We’re about to reveal how intelligent moves can mean big savings for those pursuing mortgages as self-employed individuals. Keep reading to find out more about this potentially life-changing trick! 

How to get a mortgage when you’re self-employed? 

The key to obtaining a mortgage when you’re self-employed is thoroughly preparing. You must demonstrate your financial reliability and creditworthiness to convince lenders that you can repay the loan. Here are some practical steps you can take:

1) Request a copy of all three of your credit reports from the major bureaus – Experian, Transunion, and Equifax – so that you have an accurate picture of what potential lenders may see when they review your application a mortgage loan.

2) Research any outstanding debts or other obligations, such as student loans or taxes, as these may affect your ability to qualify for a loan under certain conditions. Be sure to address any hostile activity on your report to improve it before applying for a home loan if necessary.

3) Assemble documents related to two years’ worth of income tax returns, including Schedule C forms (for business owners). This paperwork should show that your business has been profitable over the past two years; if not, be prepared with documentation showing adequate cash reserves instead (in this case at least six months’ worth).

4) Compile other relevant financial information needed by most lenders including bank statements for personal accounts and/or business accounts depending upon which entity will be issuing the mortgage payments; copies of paid invoices as proof of ongoing client work; proof of payment on existing debt such as credit cards or car loans; and other pertinent data such as real estate owned under different entities controlled by yourself etc.

Having all this information readily available makes processing easier for both parties since there is no surprise element during negotiations between lender and borrower(s).

With good preparation come great results! Start planning now – follow these steps diligently and make sure everything checks out accurately before applying. 

The different types of mortgages available for the self-employed.

To answer your question, the self-employed have several mortgage options depending on their circumstances. The most common types of mortgages for the self-employed are:

Conventional Mortgages – These are traditional mortgages that typically require a good credit score and a steady income over the past two years with tax returns to prove it. They usually come with lower interest rates and may be suitable for those who can demonstrate an ability to pay back their debt in a timely fashion.

Non-Conforming Mortgages – This type of loan is designed specifically for borrowers who don’t fit into conventional loan requirements due to a lack of required documents or poor credit scores. It usually comes at higher interest rates than traditional loans but allows easier access to financing for those who cannot qualify under standard guidelines.

Portfolio Loans – These are tailored loans that do not meet guidelines set by banks or other traditional lenders due to either low documentation or limited income sources (such as freelance work). As such, these loans may be harder to get and generally more expensive than others due to higher risk, but they provide flexibility when financing unconventional businesses like freelancing gigs or creative endeavors like music production, etc.

Non-Qualified Mortgages – This type of mortgage gives leeway on strict credit requirements while ensuring adequate repayment abilities through evaluation methods such as cash flow analysis and verification of assets rather than relying on job history alone. It also covers those whose incomes fluctuate significantly yearly (like many entrepreneurs).

Overall, there is no ‘one size fits all’ approach when selecting mortgage types for self-employed people; however, being cognizant about what you want from your lender will go a long way in helping you get favorable terms suited just right for your individual needs!

How your credit score affects your mortgage options?

Your credit score significantly impacts the mortgage options available to you. Lenders will use your credit score to help assess if they should lend you money and how much interest they’ll charge. Generally speaking, the higher your credit score is, the better deals you can get with lenders including lower interest rates and more significant loan amounts.

Having an excellent credit score is even more critical for self-employed borrowers since some lenders may be hesitant to lend to those without proven steady income streams or employment histories. Requiring a higher credit rating ensures that self-employed borrowers are in good financial standing before being approved for a loan. That said, plenty of banks offer competitive products for those with strong personal finances, so it’s worth researching and looking into different options based on your situation!

What to do if you’ve been denied a mortgage?

Being denied a mortgage can be challenging, especially when you’ve scrimped and saved for months or years in preparation. 

However, there is always hope! If you’re self-employed and were denied a mortgage based on insufficient proof of income, you should first prove your income with tax returns, bank statements, pay stubs, or other documents showing your earnings. You could also look into mortgages for self-employed borrowers which are specially tailored solutions that may provide more options.

Additionally, if credit scores are an issue, you might want to consider developing strategies to improve them before applying again or visit credit counseling services if needed.

How to prepare for a mortgage application? 

Preparing for a mortgage application can be daunting for self-employed borrowers. You’ll need to show that you have the capacity and stability to handle the loan payments.

The key is being organized and thorough with your documentation. Here are some tips:

1) Gather all your financial documents – tax returns for the past two years, bank statements for at least three months before applying, pay stubs, and records of other income sources such as investments or rental properties you own. The more paperwork you can provide, the better chance of success in securing a loan from a lender.

2) Establish good credit history if possible by paying off any outstanding debt before applying; lenders will look at your credit score as part of their assessment process. Demonstrating that you have been managing debts responsibly should help improve your acceptance chances.

3) Prove that you can make consistent mortgage payments by showing proof of steady income over time (i.e., how many hours worked per month). This could include presenting evidence such as monthly payslips, profit & loss statements, or bank statements showing regular deposits into accounts (if income comes from investments).

4) Prepare yourself mentally and financially – this may seem like an obvious one but it’s worth mentioning! Make sure that you understand exactly what kind of commitment taking out a mortgage involves and how much it will cost each month after fees/charges etc are taken into consideration; make sure that this repayment amount is something that fits comfortably within your budget so there aren’t any nasty surprises down the line!

Following these simple steps should give self-employed applicants an advantage when submitting their mortgage applications successfully – good luck!

Need Help? 

The self-employed have a bit of an uphill battle when obtaining a mortgage. That being said, there is hope out there. Proper guidance and advice make it possible to attain the property of your dreams. Having the ability and information to tackle the challenges of securing a mortgage is essential for self-employed people.  At Stone Tree Lending Team, we specialize in helping those just like you. Our team includes experienced specialists who create custom solutions based on your financial goals and ambitions. So take pride in taking that first step towards homeownership and contact us today!

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