What the Self-Employed Need to Know When Applying for a Mortgage 

Buying a home or owning a property can often feel like a pipeline dream for those that are self-employed, or working as a freelancer. Typically, any lender will carefully evaluate the financial criteria of any mortgage applicant. What many lenders are hoping to see is someone with a steady, full-time job, and a bulky paycheck.

This can create a big problem and numerous challenges for those who are self-employed or freelancing. Luckily, you’re not the only one who might be doing this alone, as several sources claim that there are millions of people across the United States currently working as freelancers or tax-registered as self-employed.

The Small Business Administration (SBA) claimed that more than 27.1 million people claimed a “non-employer” small business — considered to be those without employees nationwide, had filed Schedule C tax documents during the most recent tax year.

Being approved for a mortgage loan is typically a lengthy process, not to mention the complexities of ensuring you submit all the necessary documents. As a self-employed worker or even someone who works on a contract-to-contract basis, you want to make sure that you have checked all the boxes before you apply for a mortgage loan.

What You Should Know When Applying for A Mortgage?

As a self-employed worker or freelancer, you might experience the process being slightly more complex, as you will need to prove to lenders that you have the financial stability to meet loan demands and requirements.

Build Good Credit

Unfortunately, applying for a mortgage will require you to have an existing credit score. This is one of the hardest things for many freelancers and contract workers seeing as credit scores are used to evaluate your debts, income, and any savings. What’s more, the credit score you will need will mostly depend on the size of the loan that you’re applying for.

On average, lenders consider a credit score between 580 to 669 as fair, while anything between 670 to 739 is considered a good credit score. The threshold between 740 to 799 is very good, and a credit score above 800 is excellent, according to the credit bureau company, Equifax.

Make sure that you have already started building your credit score, and if you haven’t done so already, apply for a credit card, and make use of it for daily purchases. Be sure not to spend beyond your threshold, and that you can make the repayments.

Clear Outstanding Debt

Additionally, you will want to make sure that you are clear of any other outstanding debts, beforehand. This may include things such as car loans, student loans, or outstanding hospital bills. While these accounts may still be active, consider decreasing your debt as much as possible before you apply.

While there are cases where individuals have been approved for a mortgage loan, while still having additional debt obligations, as a freelancer or contract worker, you will need to prove that your debts do not exceed your income or earnings.

Make sure that you minimize any debt you may have, either by making monthly installment payments or paying all of your debts off at once. Try not to deplete your savings or emergency funds at the same time while doing this, as this will be reflected on your bank statements, which will be reviewed by a loan officer.

Work with A Professional

While you or your partner may be considering going about this alone, you must take some guidance from a professional to help you throughout the process. Getting a professional on board will help clear out any questions you may be having, but also put you in the right direction in terms of what documents you may need to gather and information you need to provide mortgage lenders with.

At times you may feel that hiring a professional or using their services is considered irrelevant, however, as someone working for themselves, you will need as much professional guidance as possible.

You can reach out to your bank, or even consult with a mortgage officer beforehand, they will provide you with the necessary forms you will need to complete. Additionally, you can also speak to a real estate professional, as they typically have a good grasp of how the process works, and what lenders require from self-employed mortgage applicants.

Have Sufficient Savings

Before you can apply for a home, a loan officer or mortgage lender will require you to have sufficient savings to use as a down payment or deposit for your loan. The amount may vary, depending on the size of the loan required. However, many people typically have a 10% value of the property as a down payment.

This isn’t always the case, and many times applicants tend to have less than 10%, anything around 5% for a downpayment. Nonetheless, it’s important to consider that having a larger down payment will help reduce the loan amount significantly, and can also help you secure a better mortgage rate.

Experts suggest that anything between 15% to 20% of purchase value is…