You can still get a mortgage for your home, even if you've been self-employed for less than two years. Ultimately, your company must be active for a minimum of 12 consecutive months and you must verify your last two years of employment (including those that you haven't been self-employed).
Most mortgage lenders require at least two years of stable freelance work before you can qualify for a mortgage loan.
Lenders define the self-employed worker as a borrower with a 25% or more interest in a company, or a person who is not a W-2 employee. Mortgage lenders evaluate self-employed customers the same way they evaluate other borrowers.They'll want to make sure you have a decent credit score. They will also analyze your debt-to-income ratio (DTI) to determine if you can comfortably afford the mortgage payment associated with the loan. Finally, lenders will analyze your asset and income statements to verify your resources. And your intended use (primary residence, vacation home, investment property) will affect your rate and the types of mortgage loans you qualify for.
So, if this type of loan appeals to you, it's worth asking the lender if you and your home qualify. When you're self-employed, lenders have to take a closer look at your finances to determine if your income is reliable and if you can afford the mortgage. If you have negative data on your credit report, talk to a mortgage lending expert about options to pursue and applicable waiting periods. However, the standard financial documents you need to apply for a mortgage loan (proof of income, tax returns, and employment verification) are everywhere.
Before you apply for a mortgage, it's wise to pay off credit card or car loan debts if you can afford it and if you're worried that your DTI will be too high. This means that you have the flexibility to compare prices and find the type of loan you want and a competitive interest rate. In addition, your monthly mortgage payments will be lower and you will have less money borrowed in the event of default. While underwriting standards will vary depending on the lender and the type of mortgage loan you receive, the same types of documents are likely to be required.
Non-QM loans don't meet qualified mortgage standards set by the government and are sometimes also called alternative or no-income verification mortgages. For self-employed borrowers, a loan officer may conduct a review of the borrower's business to determine its stability and the likelihood that its income will remain at the same level. To determine the stability of your company and the chances that the revenues it generates will remain at the same level, credit officers can also conduct a review for self-employed borrowers. If you're self-employed and looking to get a mortgage loan, here are six steps you can take to prepare for the process:
- Pay off any existing debts
- Check your credit score
- Gather all necessary documents
- Compare different lenders
- Make a high down payment
- Calculate your debt-to-income ratio
Lenders often analyze your DTI to determine if you have enough income left over to make additional mortgage payments.
