Advice from a Chester County Mortgage Company
There is much to appreciate about self-employment, from setting your own schedule to pursuing work you are passionate about. But, when it comes to applying for a mortgage, you might face some unexpected challenges if you are a self-employed applicant.
If you are self-employed and looking to get a mortgage, our experienced team at Penn Street Mortgage is here to help. We will work with you to understand your financial situation and outline the best way to position yourself to secure a home loan as a self-employed individual.
With nearly two decades of experience in residential and commercial mortgages, our West Chester, PA, team is here to work with borrowers of all types to get them in their dream home.
If you are a self-employed borrower, keep reading to discover how to navigate the home loan process more easily.
The Challenge for Self-Employed Borrowers
As a mortgage lender reviews your application, they look at a variety of factors when deciding to approve you for your home loan. One of those key areas is the predictability of income, which can indicate how likely you are to make your monthly mortgage payments.
For self-employed borrowers, income can be less predictable due to the nature of their business, and showing that you have financial stability can require some extra steps. However, self-employed borrowers can still apply for the traditional conventional loans that a regularly employed borrower would seek out.
The biggest challenge is incorporating the additional documents and meeting requirements set out by mortgage companies for self-employed borrowers. But, not to worry! With the help of an experienced mortgage broker like our team at Penn Street Mortgage, the entire process of applying for loan programs can be simple and straightforward.
Mortgage Loans for Self-Employed Borrowers
If you are looking to get a loan as a self-employed applicant, you can still explore conventional loans, government-backed FHA loans and bank statement loans. Each offers pros and cons but are clear and viable ways for a self-employed borrower to secure a mortgage.
Tips for Getting A Mortgage Loan as a Self-Employed Individual
1. Become Fluent in Your Financials
As a self-employed individual, your personal and professional finances are likely closely intertwined, which can complicate things in your application process.
Before applying for a mortgage, it is important to have a clear understanding of your financial picture, so you can advocate for your income and explain in your application which assets are yours. To do this, we suggest thoroughly reviewing your income, expenses, assets, and debts, and consider consulting with a financial advisor or accountant if necessary.
This can make the home-buying process more straightforward and stress-free when you have all the information you need available.
2. Document Everything
A clear record of your income and expenses over the past two years is typically recommended when applying for a mortgage. You should have your financial documents available, like tax returns, including all schedules and forms, and, if applicable, any corporate tax returns.
Mortgage lenders often calculate your income based on a two-year average, so it is crucial for these documents to give an accurate overview of your earnings.
3. Maintain a Healthy Debt-to-Income Ratio
Mortgage lenders also look at your debt-to-income (DTI) ratio, which is the percentage of your monthly income that goes towards debt payments. The lower your DTI is, the more likely you are to unlock the best loan terms and potentially save money on interest rates.
If your DTI ratio is currently high, it can benefit you to pay down existing debt, increase your income, or a combination of both.
4. Build a Solid Credit Score
Another major aspect of getting approved for a mortgage loan is your credit score. A strong credit score represents to a mortgage lender that you are financially responsible, can manage to pay your bills on time, and can keep your credit balances low.
As a self-employed individual, keeping a strong credit score can indicate that despite being self-employed, you are responsible with your finances.
5. Keep Cash Reserves
Having a healthy cash savings account not only reassures lenders of your ability to cover mortgage payments during times when your income fluctuates. But it could also enable you to make a larger down payment and help you secure better mortgage rates and loan terms. Plus, a larger down payment can also ensure you do not have to pay private mortgage insurance which will also add to your monthly payments.
You can use a mortgage calculator to see how a larger down payment will affect your monthly payment or impact your buying power.
Penn Street Mortgage | Your Trusted West Chester Mortgage Brokers
Securing a mortgage while self-employed may come with certain challenges, but it is by no means impossible — especially with the help of our West Chester mortgage brokers.
At Penn Street Mortgage, we are here to guide and support homeowners through every step of the mortgage process so you can complete your home purchase without stress. We know that each client has unique needs and self-employed homebuyers are no different. We can connect you with local and national financial institutions to find the perfect mortgage options for you and your budget.
Choose Penn Street Mortgage for a personalized approach with local decision-making that puts your needs first. We understand that navigating the mortgage process can be overwhelming, but we are here to answer any questions you may have and simplify the process.
Contact us and discover how we can help make your home buying process a success.
