When people are employed, they can expect a paycheck from their employer every month, making it easier to make the monthly mortgage payments. When you are self-employed, there is uncertainty about income; hence the process can be a bit challenging. A lender will probe your application more thoroughly than for an employed person. However, that does not mean you cannot own a home. Here are a few tips to help you in your journey to homeownership.
Explore Various Lenders
Do your research on the various lenders in the market. With the increase in the number of self-employed people, the home loan market is expanding as well. You can start with conventional loans, which are often what most people go with. The advantage of traditional loans is that the interest rates are often lower. You can also research FHA loans which is usually a good choice if you are buying a home for the first time. Other options to explore are IRA and 401(k). Go through each and find which one best addresses your needs.
Get Your Paperwork Ready
When someone is employed, they get a W-2 and a pay stub to prove income. This is what the lender will require to approve a loan. On the other hand, for self-employed people, it is different. Before you start looking for homes for sale in Frisco and approaching a realtor, you need to ensure you have been approved. Lenders will expect you to provide profit and loss statements, tax filed for the previous year, bank records, etc. Therefore, get all these documents ready to increase the chances of being approved.
This is particularly important for people who have just started running their business. When starting, you have less documentation to prove the success of your business. Most lenders will hesitate to give out a home loan till the company has seen at least two years. Even if you have a solid income and great earning projections, you may still not get a loan. However, do not be discouraged. Take this time to keep improving your credit score and saving up for the down payment. You should also start exploring various luxury homes for sale Dallas-based and see what the market offers. When you finally qualify for a loan, you will also be prepared for other aspects of home buying.
Ensure You Have a Good Credit Score and Credit History
This is something that lenders are keen on whether you are an employee or self-employed. Lenders have different requirements, and it can be hard to say the exact credit score they want. However, a credit score in the 700s is recommended. When you are self-employed, you may get a home loan even with a credit score in the 600s. Either way, if you know homeownership is in the future for you, start improving your credit score early.
When looking for a home loan, approach several lenders. While some are strict, others are easy. It will also help you compare various options and choose something favorable.