The satisfaction of seeing your business go from being a sketch on paper to being a profitable venture is immeasurable, but the struggle doesn’t end there. As of Aug 2020, The Bureau of Labor Statistics reports that 15 million self-employed Americans live the dream of being their own boss. But many of whom are now making their living room their office due to the recent COVID-19 pandemic. No matter the reason for wanting to join the Santa Clarita housing market, here are some tips on how to crack the code for self-employed workers!
It is said that the actual lending process for the self-employed is the same as any other, but this is not always true.
Of course, some self-employed people will have to put more effort into getting a mortgage. We are still starting with the offer price, we are still filling in the application, we are signing the documents, and we are submitting the documents. While employed applicants must provide a W-2 form as proof of income, the self-employed applicant must provide his 1040 tax return; this will be a disadvantage as the debt / income / credit requirements will not necessarily be the same. Let’s break that down…
Usually, accountants of self-employed clients write off expenses that a W-2 employee cannot afford, such as travel and travel expenses. So with these depreciations, your actual net income is lower than it would otherwise be.
The key is a net income before depreciation that meets the lender’s preferred debt-to-income ratio, which typically ranges from 36% to 43%. If your debts are too much, it can become harder to qualify for a mortgage.
If a lender considers you a “self-employed applicant,” you are likely to pay more for your mortgage because interest rates are higher. Right now, though, the market is experiencing historic low level interest rates that we haven’t seen since 2016. The time has never been better to own a home, but with a solid payment pattern, you may be able to refinance at a lower interest rate later.
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Want to improve your odds of being approved?
-Keep separate business and personal accounts and pay expenses such as rent, bills, taxes, insurance, and other costs in a different account.
-Set goals, see your progress, and open more doors to your financial goals – and you will see long-term improvement, not just in terms of your credit rating, but also in terms of your overall financial health.
-According to the Federal Reserve Bank of Los Angeles, companies are registered and licensed, and registration has an impact on your score.
-You can make a large down payment by perhaps tapping into an IRA or 401 (k), or you can consider working part-time for a few weeks or even months while you’re at work.
Getting a mortgage approved may be difficult, but it is not impossible. In fact, on average, about half of all mortgage loans Pacific Funding Mortgage Division grants each month go to self-employed borrowers. Find out why we’re home of the 25 day close if you are thinking of becoming a homeowner in 2020.