Applying for a mortgage can be tricky. There are many steps to take, and if you're self-employed, there's even more to consider. As you work your way through this process, there may be some bumps in the road - but if you can avoid some big mistakes, the whole ordeal will go much more smoothly. So, what are these mistakes?
Of course, the possible mistakes are endless... You could, in theory, do any number of things that destroy your credit or damage your ability to make money, but we'll stick to more common issues that hurt the application process.
Make sure you steer clear of these major mistakes: 1. Murky Tax Returns
For self-employed borrowers, income verification will use tax returns (as opposed to W2s), and they need to be accurate! For many people who work in "cash businesses," tax returns might not include tips, income from side projects, and so on... It's not uncommon, but when your tax information is determining your income, you want to make sure that each source of earnings, all of your write-offs, and any additional income is all well documented! In fact, most lenders will be looking for 2 years' worth of returns, so even if you're just beginning the house hunting process, start getting your taxes in order immediately! 2. Not Saving for Down Payment
While many self-employed borrowers can find mortgages similar to those of more traditionally employed people, they often come with stricter requirements. One of those requirements may be a sizable down payment - so you should start saving for it now! This could mean tightening your belt to cut down on extraneous expenses, cashing on investments, or even selling off assets to build your savings. Too many people looking for self-employed mortgages make almost all the necessary preparations, but neglect to put money aside for an above average down payment. Start saving right away!
3. No Budget
Depending on the type of loan you go with, there will be varying minimum and maximum amounts you can borrow. If you don't already know your budget - both in terms of total loan amount and monthly mortgage payments - it will be far more difficult for a lender to help you find the right loan! This mistake can affect everyone, but because being self-employed can come with unpredictable income, lean seasons, or big windfalls once or twice a year, it's that much more important to determine what you can afford at the beginning of your mortgage planning.
4. Missing Deadlines
This one also applies to any borrower, but because business owners, freelancers, and other self-employed people can have rollercoaster schedules, it's important to be diligent about deadlines. When you have meetings with lenders, appointments to sign papers, opportunities to work with credit repair experts... Any of the hoops you need to jump through to secure your home loan... Don't let your other responsibilities get in the way! You may need to take a call or finish a project, but every time you derail the mortgage process by filing paperwork late, missing a meeting, or anything else, you make it harder and harder to finalize your loan and find your home.
Take care to avoid these mistakes, and you'll set yourself up for an easier, smoother time finding a home loan - especially if you're self-employed. Be patient as you search for lenders, carefully consider your budgets and proof of income, and of course, take the time you need to determine exactly what you want, what you can afford, and what you want your payments and rates to look like.
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