More often than not, owning a home is anyone’s biggest dream. We all want to have our own home that will be our sanctuary and a place to build our family goals. However, the ability to buy a dream home can be hampered by several factors.
In the past, you couldn’t acquire a home if you did not have a consistent income and a full-time paying job. But with the innovative trends about today’s workforce, there have been noticeable changes in the ways how you can purchase a home.
The good news is, self-employed professionals can also be qualified for a mortgage. This is very important to know because some self-employed individuals are hesitant to apply for a home mortgage. If you are self-employed, here are what you need to secure:
Proof of Income
Just like any other loan application, proof of income is an essential requirement when applying for a mortgage. Usually, employees can present their payslips and other documents. On the other hand, self-employed professionals must have their own records and present proof of income. The purpose is to prove the following:
- Financial stability of the business
- Income stability of the professional
- The capacity of the self-employed professional to generate future income
Expect lenders to be asking for an explanation about the financial history of the self-employed individual.
Part of the verification process is showing some emails, correspondence, and other documents to verify the employment. You can present other documents, including a record of a licensed accountant, business license, and business insurance.
Lenders may also ask to see full tax returns so that they can have a full grasp of how self-employed professionals earn their income. Typically, they will ask for their personal and business tax returns in the past 12 months if you have been working for less than two years.
Another critical factor in getting an approved mortgage is the debt-to-income (DTI) ratio. It refers to the percentage of a person’s gross monthly income that is paid for monthly debts. The lender usually prefers lower DTIs, wherein 43% is acceptable. Any self-employed professional who acquired more than 50% DTI must first consider reducing debt before submitting a mortgage application.
Having an ideal credit score is always an excellent way to secure a mortgage, whether you’re an employed or self-employed professional. Every borrower should pay off his/her debts to ensure a good credit score rating. Opt to hit at least 640 credit score for both conventional and FHA loans.
The idea that only those employed individuals can be qualified for a mortgage should be clarified. If you’re a self-employed professional who wants to own your dream home, you too can do that! Make sure to secure all the necessary documents and be ready to answer the lenders’ questions to avoid any setbacks during the process. Also, only deal with a reliable mortgage lender so you can have the keys to your own home in no time!
Ready to buy your dream home? Contact your trusted Birmingham mortgage group, Gagliano Mortgage! For any inquiries about getting a home loan, we will be happy to talk with you today.