Applying for a home loan as a self-employed borrower can present obstacles which the traditional employee might not need to navigate.
But you do not need to feel discouraged. It is possible to qualify for a competitive home loan in Washington if you own your own business.
The following pointers should help you to avoid some pitfalls along the way.
1. Big box lenders may not know what to do with you.
If you go to a big box lender, you might have a hard time getting approved for a mortgage as a self-employed individual.
These lenders tend to take a cookie-cutter approach to the process, and may frustrate you by demanding W-2s, pay stubs, and other paperwork you cannot provide.
Rather than put yourself through this, consider going to an independent mortgage broker that works regularly with self-employed borrowers and has its own process in place just for people in your situation.
2. Keeping good business records is essential.
If you are applying for a mortgage is a traditional employee, you would be expected to you prove that you have been steadily employed for two years and are on a stable career track.
As a person who is self-employed, you should be looking to prove the equivalent. You need to be able to document that you have been in business for at least two years and make a case that your business will be stable over the years to come.
The key to doing this is to maintain thorough and accurate business records which you can submit as part of your application.
3. Having some cash on hand is a good idea.
One of the qualification standards which lenders consider regardless of whether you are self-employed or not is your cash assets.
It can be difficult to try and maintain cash assets when you are operating your business but doing so can add to your eligibility when you apply for a mortgage.
4. Be consistent in your approach to self-employment.
One thing which lenders do not want to see is an “on again, off again” approach to running your own business.
Run your business with consistency. Make sure it does not look like it is simply a backup plan which you resort to when you think you cannot find a job as an employee.
5. Maintain a solid credit score if you can.
Being self-employed creates challenges when it comes to documenting your income, but it shouldn’t have any effect when it comes to your credit score.
If you can keep your credit score high, that should be a big help in qualifying for a competitive home loan, regardless of your self-employment status.
6. FHA loans are available to self-employed persons.
Are you interested in applying for an FHA loan? If so, you may have heard that you cannot qualify as someone who is self-employed.
But this is not true. It can be harder to get an FHA loan if you are self-employed. That much is true. But being self-employed does not make you ineligible. Ask your mortgage broker what you need to do to qualify for an FHA loan.
7. No, you do not need a W-2 to apply for a mortgage.
The most common hurdle to run into as a self-employed borrower is the standard requirement for a W-2 to prove your income. A traditional employee would be expected to furnish this.
A big box lender that does not treat you as an individual might keep insisting that you need to provide this form, even though you do not have it.
But you will not run into this issue if you work with an independent mortgage broker that is aware of your situation and offers an alternative process to verify your income.
Look for a company that offers stated income loans or bank statement loans, and you will not need to worry about W-2 forms.
Apply for a Stated Income Loan in Washington With Blue Square Mortgage
Blue Square Mortgage makes it easy for self-employed persons to apply for a mortgage with our stated income loan program. We do not require a W-2 or pay stubs. To apply for a stated income loan now, please call (206) 352-6453.