The Marquee Loop, Mortgage Myths: Self Employment

The statement “You can’t qualify for a mortgage if you’re self-employed” is a mortgage myth. While being self-employed does present some unique challenges when applying for a mortgage, it does not automatically disqualify you from obtaining a mortgage. Here’s a more accurate understanding of the situation:

Proof of Income: Self-employed individuals typically face additional documentation requirements to prove their income compared to traditionally employed individuals who receive regular pay stubs. Lenders typically request tax returns, financial statements, and other documents to assess your income stability and determine your borrowing capacity.

Income Verification: Instead of relying on W-2 forms, self-employed individuals often need to provide several years of tax returns (usually two to three years) to demonstrate their income history. Lenders may calculate your income based on your average earnings over this period.

Creditworthiness: Your credit history, credit score, and debt-to-income ratio are still significant factors that lenders consider when evaluating your mortgage application. Having a strong credit profile can increase your chances of approval.

Financial Stability: Lenders want to see evidence of financial stability. This includes having consistent income, a well-established business, and sufficient reserves or savings to handle mortgage payments and other financial obligations.

Down Payment and Reserves: The amount of down payment you can provide and the presence of adequate reserves can positively impact your mortgage application. Lenders often require self-employed borrowers to demonstrate a higher down payment and maintain more substantial cash reserves.

Specialized Lenders: Some lenders specialize in working with self-employed borrowers and have underwriting processes tailored to their unique circumstances. These lenders may have specific requirements and guidelines that are more accommodating to self-employed individuals.

It’s crucial to work with a knowledgeable mortgage professional or loan officer experienced in working with self-employed individuals. They can guide you through the process, help you gather the necessary documentation, and provide advice specific to your situation.

While being self-employed may add complexity to the mortgage application process, it does not automatically disqualify you from obtaining a mortgage. By demonstrating your income stability, financial responsibility, and meeting other qualifying criteria, you can increase your chances of successfully securing a mortgage.