Being Self-Employed And Getting A Home Loan

There is no better feeling than having and running your own business. But it does take a lot more work than just having a regular job, you work harder and for longer hours. There is the potential there to make more money though if you do well with it. There are other things to consider, doing taxes is different and home loans for self-employed individuals are harder to get when you want to buy a house. While there are lenders you can turn to that will lend to people who are self-employed it tends to be harder to apply for because of the extra paperwork requirement. Here is a closer look.

Income qualification is one of the issues

When you are applying for a loan you need to have a certain income to qualify. For a self-employed person that means having to prove to the lender they have a steady enough income to manage the monthly payments towards their mortgage. The problem is with being self-emplyed that often income is not steady, it has its ups and downs so business owners, especially small or new business owners and independent contractor and such struggle to fulfill that need. There are also businesses that work seasonally so are open during the spring and summer months but closed in the winter. When looking into self-employed home loans that might means that even though you can make those payments, on paper it might look less likely.

Tax liability can be another

Another issue with home loans for self-employed individuals is that accountants often do their best to reduce the tax you are liable to pay but in fact, reducing your tax liability counts against you when you want a mortgage. It reduces your net income and so when the lender looks at those amounts you can’t qualify for a higher amount or get a loan at all. The burden of producing proof og having a steady income is on you. It means ideally you need to talk to your accountant a couple of years before you want a loan so they can make changes to their approach for that time.

New business owners tend to stretch their credit lines

Another issue when you are a new business owner is that often to keep things running you are pushing your lines of credit hard. It is not the best position to be in but a lot of new and small business owners might have to do it at some point. This stretching of credit lines will impact your credit score and make it harder to get self-employed home loans.

Summary

When you are self-employed however that might be, contractor, business owner or whatever, you need to know that getting a home loan is possible but you need to be prepared. You will need to talk to your accountant, talk to an expert and be able to provide more paperwork than someone with a steady income has to. If you can afford it you can get a loan, you just need to be ready for a few more things to navigate.