Self-Employed? Learn How Mortgages for Independent Contractors Can Help

As the nature of work continues to change, more people are exploring mortgages for independent contractors. More self-employed people than ever are discovering that homeownership is possible when the right steps are followed.

Today, we’re sharing the smart way for independent contractors to prepare for their mortgage applications.

When it comes to your credit score, knowledge is key

Your credit score is vital when getting approved for a mortgage. The higher your score and the more pristine your payment history, the more favorable it is for your mortgage.

But what if your score needs improvement? Does that mean that you can’t get a mortgage?

Not at all.

It’s entirely possible to improve your credit score so that lenders will look more favorably on your application.

Here are some things I’ve learned over my long career of helping self-employed buyers get mortgages that are right for them. Follow these steps:

• Don’t open any new credit cards, car loans, or other lines of credit.
• Avoid paying off anything in collections until you first check with your loan officer.
• Pay down your cards to a 30% balance.
• Don’t cancel any current lines of credit without talking with your loan officer.

Most importantly, it’s important to speak with a mortgage professional about your credit. Don’t allow feelings of embarrassment or intimidation to prevent you from taking control of your credit score.

We know additional strategies to help you raise your credit score. We aim to get you approved for a home loan, from credit repair programs to individualized credit-worthiness plans.

Don’t have a W2? Don’t worry.

Many self-employed people won’t receive a W2 tax form. Instead, they may receive a 1099 form, for instance.

Not having an employer-based income that’s reflected on a W2 doesn’t bar you from getting a mortgage. You’ll likely have to provide more documentation and income details than a “traditional” applicant, but rest assured that homeownership is still open to you.

What exactly do you need to get ready? Prepare for your mortgage application by having these items:

• Two years of Federal tax returns, with all pages including a Schedule C and E, if applicable.
• Pay stubs or direct deposit history.
• Three months of bank statements, with all pages
• An audited or non-audited year-to-date Profit & Loss statement

In the absence of a W2, your prior tax returns will play an important role when seeking out mortgages for independent contractors like yourself.

That’s because as a self-employed individual you may go through times when you earn less. Your tax returns help demonstrate to lenders that you have the potential for higher earnings, meaning that you won’t have trouble sustaining your mortgage.

A local mortgage professional is an invaluable resource when helping you sort through your financial documents. Don’t hesitate to speak up with any questions and let your loan officer know if you’re confused or need extra help.

A Government-backed home loan could be the answer

The federal government backs FHA home loans, making lenders feel better about extending a mortgage to someone self-employed. If you’re unable to meet the terms of your loan, the government will guarantee the funds, which can put lenders at ease.

Other benefits to an FHA mortgage are:

• Relaxed credit score and income requirements
• Low minimum 3.5% down payment

FHA home loans are also great for first-time buyers for these reasons, but an FHA-backed mortgage isn’t your only option.

If you’re a military member or veteran, or if you are hunting for a home in a less densely populated area, you can explore the eligibility for a VA home loan or a USDA home loan, too.

Bottom line? You can get a mortgage if you’re self-employed

If you’re confused about how to apply for a mortgage for independent contractors, we’re here to make it simple for you. From our blog posts on improving your credit to our handy home loan checklist, to our personalized service, we are here to help you get ready for homeownership. Contact us to learn more about how to get ready for a mortgage that works as hard as you do.